Treasury Today Country Profiles in association with Citi
Treasury Today in China 2006 Issue 4 Buy print copy button

November 2006


Quarter Four 2006

There have been significant changes in China’s foreign exchange arena in recent years. Even in the past 18 months, many of the regulations governing foreign exchange have been relaxed and new policies have been introduced. In July 2005, the decade long policy of pegging the renminbi to the US dollar came to an end and a new regime was introduced. The renminbi now tracks the value of a basket of foreign currencies, its value fluctuating daily within a set tolerance level. In August 2006, this trading band was broadened allowing larger swings. These steps indicate that the People’s Bank of China (PBOC) is relaxing its control over foreign exchange and perhaps laying the ground for the eventual free floating of the renminbi.

So what does this change in approach towards foreign exchange mean for corporates operating in China? As the Chinese markets open to foreign trade, so foreign exchange becomes increasingly important. However, while increasing foreign trade will bring benefits to companies working in China, there are also attendant risks. Foreign currency dealing exposes companies to the risk that the value of their assets and liabilities will change with fluctuations in the foreign currency markets. It is the treasurer’s responsibility to limit the impact of foreign exchange risk. The developments of recent years have made it possible for companies in China to take a far more proactive approach to foreign exchange risk management than ever before. In this quarter’s Cash Management article we look at foreign exchange risk and the opportunities for foreign exchange risk management available to treasurers in China.

Policy changes in China are not only restricted to foreign currency. Many of the regulations governing how China’s financial sectors should operate are currently subject to change. All treasury professionals working in China will be aware of the pace of these changes and the need to adapt processes to reflect new regulations. At the same time, the treasury profession in China is evolving rapidly. Corporate treasuries in China now routinely deal with a wide range of issues. Treasurers need to make sure that both they and their treasury teams are fully up-to-date with the latest market changes. Our article on treasury training explains how training can help with this process and takes a look at the various training opportunities available to treasury professionals.