In June, Pou Sheng China completed the first cross-border RMB two-way sweeping transaction outside the Shanghai FTZ (Free Trade Zone) for a Taiwanese enterprise, after the PBoC’s RMB cross-border pilot was extended nationwide. Read how the company achieved this.
Photo of Sue Chang, Pou Sheng (China) Investment Co.
Pou Sheng (China) Investment Co., Ltd. operates as an investment holding company and through its subsidiaries retails sportswear brands such as Nike, Adidas, Li Ning, Reebok, PUMA, Converse, Hush Puppies and more. The company also provides research and development, and provision of procurement and consultation services. The company is based in China. Pou Sheng (China) Investment Co., Ltd. operates as a subsidiary of Pou Sheng International (Holdings) Ltd which is a Hong Kong Listing Company (stock code 3813).
Taiwan company establishes RMB cross-border sweep outside Shanghai FTZ
Pou Sheng operates numerous entities globally with cash-flow positions that are in surplus in some countries and in deficit in others, resulting in high financing costs and offering balance offset opportunities.
China’s foreign exchange control policies prevent funds from flowing freely cross-border even if the source of funds is from within the same corporate group. Onshore entities are only permitted to borrow from offshore entities/sources with a limited foreign debt quota specially approved by the State Administration of Foreign Exchange (SAFE).
Pou Sheng Group has implemented a RMB-denominated cross-border sweep solution following the PBoC’s (People’s Bank of China) announcement of the new pan-China liquidity management scheme. The programme, which is instrumental in the internalisation of the RMB and further promotes convenient trade and investment, offers a new channel of RMB cross-border flows so more corporates can improve their global liquidity management and enhance their payment efficiency.
The circular by the PBoC further expands the operation of multinational corporates’ cross-border RMB funds through a cross-border RMB two-way cash pool, from Shanghai Pilot Free Trade Zone only to pan-China. This allows companies across China to participate in the new scheme, subject to certain requirements such as the size of their onshore and offshore entities, years in operation and filing to the PBoC.
I am proud to win this award; it is an important milestone in my treasury career and it proves that I have some worthy experience to share. For my team and my company it is also a significant honour. We are the first Taiwan company in China to structure a mechanism for enhancing cash flow efficiency from offshore to onshore and vice versa. We are all very proud that our efforts are recognised by winning the Adam Smith Asia Award.
As Sue Chang, Vice President explains, “on 12th June Pou Sheng China completed the first cross-border RMB two-way sweeping transaction outside the Shanghai Free Trade Zone (FTZ) for a Taiwanese enterprise, after the PBoC’s RMB cross-border pilot was extended nationwide.”
By setting up a cross-border cash pool, the company can improve its liquidity management among its Hong Kong parent company and Chinese subsidiaries. The criteria to be a qualified applicant (company) are selective, and yet to make the applying company and the cash pool structure compliant with the PBoC regulation requires a precise understanding and good communication with the regulators.
Standard Chartered Bank was the sole advisory and service provider in establishing this cross-border cash pool.
Best practice and innovation:
Due to the selective criteria, very few Taiwanese companies qualified. Pou Sheng, with support and in partnership with its bank, was able to justify Pou Sheng as a qualified applicant.
Pou Sheng therefore became the first successful case for a Taiwanese enterprise in the market, and established a precedent for Taiwan companies in managing their liquidity in the Asia Pacific region.
As Sue Chang concludes, “In the course of history, we have seen many innovations result from the precise understanding of changes in industry followed by timely action. For the financial sector, many innovations come about in part due to changes in regulations. This also applies for treasury management, where corporate treasurers must be abreast of key regulatory changes in their markets, and innovatively execute strategies in order to maximise the benefits that such regulatory changes can bring to their companies. In this aspect, we feel that Pou Sheng, through leveraging our bank’s in-depth, on-the-ground understanding of RMB regulations, has achieved this.”
Key learning points:
Pay close attention to every new government rule (especially in the Emerging Markets) and investigate any advantages to your company.
If there are advantages, then get as much support as possible to leverage them.
Always push to become the pioneer; don’t let opportunities get away easily because once the window has closed, that chance will have gone.