Leveraging Opportunities in China
An interview with Lisa Robins, Head of Global Transaction Banking, Asia-Pacific and Frank Wu, Head of Trade Finance and Cash Management for Corporates, Greater China, Deutsche Bank
How do you see China’s ongoing importance as a strategic market for your clients?
Despite a slowdown in China’s growth in 2011, we are still envisaging growth of about 8% in 2012, far higher than that of other, more troubled regions, such as Europe and North America. * Consequently, we anticipate that China will remain a key strategic market for our corporate clients. However, there are some important macroeconomic trends that will continue to affect our clients’ treasury, cash and trade finance requirements. For example, the growth slowdown of China’s GDP as a result of depressed overseas demand for Chinese exports is encouraging a greater focus on the development of the domestic economy. This provides opportunities for foreign exporters providing goods and services into China.
Another change is the development of the Renminbi (‘RMB’) as an international currency. As the range of trading, investment and financing options in offshore RMB (CNH) continues to increase, so are companies who are looking at the opportunities of doing business in RMB in addition to exploring options onshore. However, it is important to understand the regulatory framework which remains complex and challenging, with which experienced banks such as Deutsche Bank can assist.
How should treasurers respond to this changing environment?
Treasurers need to remain focused on how best to manage their cash, working capital and the associated risks, and ensure that they have the right banking partners to help them. We are finding that senior treasurers, both in China and overseas, are seeking our help to navigate the complexities of cash and trade in China and understand emerging opportunities, such as RMB trade settlement, financing and investment offshore.
As China moves towards becoming a manufacturing centre - and away from simply providing an assembly base, which is part of the government’s policy to move up the value chain - there are new challenges for treasurers. Treasurers need to understand their supply chain across both the buyer and supplier community, and identify their risks and opportunities. Some treasurers who have their entire treasury function located outside of China are now looking at the potential to set up shared services in China in order to manage the financial supply chain more effectively. Companies with a Chinese treasury centre, as well as treasury centres overseas, are looking at how to streamline their activities and ensure greater cohesion.
These trends are leading to a question for many foreign multinationals: should China be considered as another ‘home’ market, remain a manufacturing base or serve as location in which to buy and sell? Many companies now have their whole supply chain based in China, a trend that seems set to continue, which has a significant impact on how treasury is structured.
Companies have different degrees of maturity in their Chinese operations. How do you help to manage these companies’ differing needs?
Foreign companies that have recently entered China or are about to do so, will have quite different needs from those with a long history and depth of presence in the country. While newer entrants are looking for entry-level solutions in cash and risk management, more established companies are seeking sophisticated solutions to streamline and simplify their Chinese operations. It is typically these companies that are most interested in the offshore RMB market, particularly since onshore borrowing costs have increased and liquidity has become more constrained. Therefore, their aim is to raise RMB funding offshore in Hong Kong and channel funds back into China through a foreign direct investment (FDI) or shareholder loan. Many of these companies are approaching Deutsche Bank for support through financing and transactional solutions that are integrated as part of an overall liquidity management strategy.