by Michael Wu of Trade Finance/Cash Management Corporates, China
In the past five years, cash management has expanded rapidly in China and with this has come a broad range of requirements from Deutsche Bank’s clients. As companies in China continue to grow and become more global, they are seeking greater efficiencies, more automation and tailor-made solutions. This plays to our strengths. Furthermore, China’s largest corporates have many subsidiaries, either in China or spread across the world. Some of these corporates are seeking ways to optimize internal liquidity, while others wish to generate cash or find the best way to deal with surplus liquidity. And then there are those that need cash-pooling solutions due to their cash-deficient position.
The cash management industry in China has moved in tandem with the increasing sophistication of clients’ demands. As Chinese companies expand beyond traditional boundaries, owning fixed assets in other countries, they need to find ways to link overseas entities to their own group headquarters in China. Chinese multinationals, for example, need an efficient and all-encompassing cash management solution in order to manage their global operations in a coordinated and centralised manner. Hence, from fairly plain-vanilla cash management, Chinese clients are now seeking more complex cash management services such as liquidity tools that offer more controls and transparency on information and cashflows, coupled with improved visibility of their group cashflow picture as they take on a more international role in the global economy.
Among the key requirements for some Chinese clients is the need to centralize their entire operation on a single platform. Deutsche Bank can provide an all-encompassing single electronic platform that links together all of the divisions and subsidiaries. And, according to client needs, we can set-up an automated system to move all of the company’s funds together onto one platform. This helps them not just consolidate all of their cash management processes, but also to provide better transparency around their operations and information flow.
This service is a differentiator for Deutsche Bank. Every bank can provide basic products and services, but not all can consolidate a company’s entire cash management operations on a single platform, pulling together information and data from across the world. Increasingly, companies will want their cash management partner to be a strategic partner that helps the map out a future growth plan and provides tools that help them determine future cashflows.
China is not just about MNCs and large cap clients, however. There is an army of Chinese SMEs to deal with and we are introducing them to our tailored financing and cash management programmes with the goal of helping them better understand industry patterns and trade cycles. For most of them, the issue is not about managing internal liquidity or cash management, but actually raising funds. Given we are mainly focusing on large cap and select mid-sized companies, what we offer in China is cash management and trade finance services to selected SMEs that have strong, long-term links with large companies.
All of this is taking place against a backdrop of increasing globalisation of the Chinese currency. More and more corporates are actively swapping foreign currencies for the renminbi in their trading activities. The number of transactions where renminbi is the preferred currency for settling trades is on the rise, increasing the global spread and the overall use of renminbi. It is becoming easier for many developed markets to exchange US dollars or euros for renminbi. But there are questions to be asked. For example, if you are an exporter receiving renminbi overseas, what do you do with the Chinese currency that is now sitting on your books? These clients are looking to their banking partners to provide critical advice, notably around cash management and supply-chain financing.
Another area that demands attention worldwide is regulation. China, as an economy and marketplace has opened up so much, especially in the past decade. This includes more flexibility shown by regulators towards rules and regulations, notably the relaxation of foreign-currency controls, which has led to a continued rise in cross-border trade and an influx of innovative liquidity solutions. Regulators are actually deepening their engagement with companies to find out what they need. They are visiting regions and cities, talking to representatives of big corporates and SMEs in a bid to understand their concerns and needs. They are passing regulations that encourage upward development of the industry, so long as the new rules are also in the best interests of the country. Some rules could be refined to streamline and improve efficiency, but the relaxation of rules, while gradual and systemic, is both positive and of huge benefit to the expansion and increasing efficiency of China’s economy.
Despite China's later start in cash management, the industry is highly developed. An increasing number of banks are entering the market at a time when a growing number of Chinese enterprises are becoming national, regional, and even global, in scale. We must not forget that although more transactions are being settled in renminbi, the currency is yet to reach its optimum in terms of convertibility.
China’s cash management industry has come a long way in the past five years but there is still a long way to go in its evolution - Deutsche Bank aims to be at the very centre of the growth story.