The End of Trapped Cash in China
by Anthony Yuen Tung Lin, Managing Director, Head of Corporate Banking Coverage, Head of Trade Finance & Cash Management Corporate, Deutsche Bank (China) Co., Ltd.
Ever since the beginning of RMB internationalisation more than five years ago, many MNCs have begun to conduct international trade in CNY for several reasons, namely, cost savings, improvements in efficiencies and to enhance risk management.
Many of these MNCs have been very successful in penetrating the China market as a result of this. Due to local regulatory constraints, a surplus in cash and profit cannot be repatriated efficiently which have resulted in what we know as the ‘cash trapped’ issue.
However, as a result of recent regulatory developments, repatriating cash and including onshore RMB within a regional or global liquidity structure is now achievable, with proven success.
Topping the global league table
China is set to overtake the United States as the world’s largest economy by purchasing power parity (PPP) far more quickly than previous estimates had suggested, and it could happen as early as this year. Whether this particular milestone materialises this year or in the foreseeable future, the result is that few multinational corporations can now ignore the opportunities that China offers, particularly given the persistence of economic stagnation or slow growth that many other world economies are experiencing.
However, doing business in China today is a very different proposition compared with just a few years ago. Not only is the scale of opportunity growing, but RMB liberalisation is already transforming the way that multinational corporations do business, a trend that is developing strongly as companies of all sizes recognise the benefits (figure 1). Consequently, exploring and exploiting emerging opportunities for cross-border trade, liquidity and investment has become a clear priority for multinational corporations and their banks.