Treasury Today Country Profiles in association with Citi

China Corporate Treasury Benchmarking Study 2010

China Benchmarking Study 2010


We have witnessed tremendous change since we established Treasury Today in China in 2005. We continue to strive for excellence and to provide unbiased insight and analysis of the treasury trends and best practices. We are, therefore, delighted to publish this report on the findings of this comprehensive China Corporate Treasury Benchmarking Study in association with Bank of America Merrill Lynch. It provides further insight into the community we serve.

This second study builds upon the Benchmarking Study we conducted during 2009 among corporates operating in China. But, the findings of this study are even more important as the study was undertaken in the wake of the worst financial crisis and global recession since the 1930’s depression. That said, economic growth is the big story as China has now overtaken Japan to become the world’s second largest economy this year. Whilst growth has slowed somewhat from earlier this year, the question now is when it will overtake the US; some commentators are suggesting this could be as early as 2030.

The results of this study are also pertinent because it was conducted during a period of some important regulatory changes in the country.

In June, the People's Republic of China made two major regulatory changes. The first, which allowed the renminbi slightly more float against other major currencies, got a lot of attention. Less attention was paid to the second announcement, later in the same week, that trade transactions from anywhere in the world can now be settled in renminbi.

Nevertheless, it is the combination of the two rules that is especially good news for treasurers who work in China. The more flexible renminbi float makes it easier to treat the currency as a store of value, and to hedge with it. Meanwhile, the ability to settle in renminbi means a significant cost reduction, and greatly simplifies trade with Chinese companies.

All of this is part of the ‘internationalisation’ of the renminbi that the Chinese government is committed to pursuing. Since the People's Bank of China replaced its de-facto peg to the US dollar by referencing the renminbi to a basket of currencies, the renminbi has appreciated noticeably against the dollar. Analysts say that one immediate consequence of removing the peg and replacing it with a basket of currencies is that there will be greater two-way variations of USD/RMB.

China has also raised the minimum level of capital reserves that must be held by banks, signalling its intention to tighten monetary policy. The reserve requirement ratio (RRR) has been increased by 50 basis points to 16%. This is the first adjustment to the RRR since December 2008, when it was reduced in response to the global financial crisis.

Banks have also been urged to rein in loans in light of concerns that persistent bank lending may overheat the economy and lead to soaring inflation. Bank loans in the first week of 2010 totalled RMB 600 billion. This could signal an end to the cheap funding that has been enjoyed by companies in China since the end of 2008, putting pressure on earnings.

Analysts are concerned that the lending splurge in China may lead to a number of potential problems, including inflation, speculative investment bubbles and industrial overcapacity. The China Banking Regulatory Commission (CBRC) has advised banks to direct loans into the ‘real economy’ only, and to avoid lending to polluting industries and companies planning to expand in areas where industrial capacity has been reached. The CBRC aims to prevent the flow of loans into speculative share and property investments.

A further rise in the RRR to 16.5% was announced in February sparking fears among investors of a slowdown in the global recovery. The rise was designed to further curb excessive lending, following the release of figures which showed new loans in January reached RMB 1.39 trillion, exceeding the total amount for Q4 2009 (although falling short of the January 2009 figure of RMB 1.62 trillion). Markets, however, reacted negatively amid fears of tightening monetary policy that could threaten economic growth.

After formal discussions starting in April 2009, the Ministry of Commerce officially launched China’s first pilot scheme for renminbi cross-border trade settlement in July 2009. The pilot programme was designed with the goal of promoting internationalisation of the renminbi. It is hoped that this will ease the pressure that is being placed on the renminbi through the country’s rapid growth. As a result of this pressure, Chinese importers and exporters are facing increasingly significant exposure to foreign exchange volatility.

The pilot programme originally allowed selected companies, known as mainland designated enterprises or MDEs, in five cities across China (Shanghai, Guangzhou, Zuhai, Shenzhen and Dongguan) to invoice and settle trade transactions in renminbi. These locations were carefully chosen by the Chinese authorities as these are particularly active cities in terms of imports and exports.

Initially, the programme was only available for trades taking place between those designated cities and Hong Kong and Macau but this was quickly extended to include the Association of Southeast Asian Nations (ASEAN). According to a recent announcement by the Assistant Governor of the People’s Bank of China, the China State Council has approved the expansion of the pilot scheme to cover 20 provinces in China as well as all countries/ locations outside of China. In addition, all eligible enterprises registered in pilot cities will be able to use the renminbi for cross-border settlement of both trade goods and services (previously only goods were permitted). Pilot enterprises approved by the PBoC who use the renminbi in cross-border goods export trading, will also now be able to benefit from an exported goods tax rebate (exemption) policy.

Finally, with the introduction of the PBoC’s new version of CNAPS (China National Advanced Payment System), widely anticipated in 2011, this may also improve electronic banking in the country and bring China in line with global business practices. This ‘second-generation’ version will include a pioneering internet payment system, which has been dubbed the Internet Banking Interconnection System (IBIS).

With the new release, the PBoC is aiming to:

  • Provide a single point of entry for all payments.

  • Adopt ISO20022 messaging standards.

  • Support renminbi cross-border trade settlement.

  • Support electronic payments.

  • Facilitate liquidity management.

China is indeed facing an interesting future and these findings provide a basis for us to try and define best practice in certain areas. This will enable us to develop some standards against which corporate treasury practitioners will be able to benchmark their own treasury departments.

Not all of these will be applicable to every company operating in China. Industry sector, size, company structures and/or cultures all have an influence. We have, however, given the sheer diversity and number of respondents to this and our European Benchmarking Study, been able to make some assumptions with confidence. We have identified trends and best practices in several key areas across a broad universe of companies. Companies can see what their peers are doing and can contrast and compare with their own organisations to see where they are and to identify where improvements might be possible. This may also assist the scoring of responses to a Request for Proposal (RFP) for example.

Service providers targeting this universe should also be very interested in these findings. They will be able to see how companies assess them and this should assist the decision-making process of where to invest product development budget. It should help drive the product development pipelines. It will also help to build the business cases for such investment and provide some feedback on the effectiveness of recent investment decisions. We would like to extend our sincere thanks to all the corporates who responded to this study and we would, of course, welcome any feedback. It is as a result of the number of responses received that we have been able to publish such a comprehensive and valuable report.


  • Foreword

  • Introduction

  • Executive summary

  • Respondent profile

  • Cash, liquidity and working capital management

  • Investments

  • Borrowings

  • Supply chain

  • Technology

  • Bank relationships

  • The future

  • Benchmarking the treasury department

  • Conclusions

To find out more, order your copy of the findings today.