All eyes have been on China of late as the economy continues to transition towards the ‘new normal’. For businesses operating in the country the shift is creating new challenges, seemingly on a daily basis. But Cefi Chen, Regional Treasury Director China and Russia at Cummins sees past these challenges and recognises an opportunity for the corporate treasury department to raise its profile.
You first began working in corporate treasury in the early 2000s, what did the profession look like then?
The corporate treasury profession began to emerge in China around the time of the Asian financial crisis in 1997. The events of this crisis made a lot of companies – especially those importing and exporting – recognise that there was a serious skill shortage when it came to managing financial risk and cash. Some organisations, due to this skill shortage, were badly impacted by the currency fluctuations at that time.
Despite this, when I assumed my first treasury role a few years after the crisis it was still primarily seen as a back-office support function. Treasury primarily focused on cash management, financing and monitoring regulation – but few within the company really knew what we were doing.
How has it developed since and what have been the drivers behind this?
Since these formative years, there have been major changes. For one thing, rapid international growth has led many companies in China to become more complex. Consequently, the treasury profession has become more prominent within these organisations as the need for prudent risk management and financial control has increased.
The rigorous regulatory regime in China has also played a role in building up the profession. There is a lot of regulation that companies have to adhere to in China, especially when doing cross-border business. Treasury has become specialised in monitoring these and making sure that the business is compliant.
Overall, treasury is now a well-respected function in China.
China is going through a transitionary period at the moment. What are the challenges that this is creating for businesses on the ground?
The slowdown in the economy and the broader structural shift is challenging companies in China – especially manufacturing companies like Cummins. One thing that is particularly notable is that credit conditions for Cummins’ downstream customers and upstream suppliers are declining and this is a major concern.
The difficult conditions that many companies are experiencing are highlighted by the increasing use of the Bank Acceptance Draft (BAD) as a payment instrument. Accepting these then negatively impacts our days sales outstanding and overall working capital cycle. Some BADs then have to be passed on to our suppliers and this negatively impacts the entire supply chain.
FX is also a growing area of focus because the RMB now fluctuates two ways – this is the new normal. For corporates to manage this effectively, we need to have more access to hedging tools onshore. These are limited at present, and I hope that this is something that the regulators will recognise and allow soon.
How is this impacting your role and that of corporate treasury more broadly?
Today I see organisations looking at the corporate treasury departments that they have built over the past two decades, wanting them to take a leading role in supporting the business to navigate through the difficult conditions that currently exist.
I make sure that my treasury team are proactive in doing all it can to support the growth of the company. We go out into the business to find out what is happening and what the challenges are. From here we can offer services and solutions that help solve these issues.
It is only by operating in this way that treasury can show its value and take full advantage of the opportunity that currently exists to drive the profession forward.
