Philips, the Dutch multinational health technology group, has just rolled out a market first cross netting solution across its nine entities in mainland China. The innovative strategy implements a single RMB cross-currency netting structure for all intragroup cross-border transactions involving Chinese entities and sets a new precedent for such structures under mainland China’s existing regulations.

Philips treasury manages over 4,000 intragroup cross-border transactions across seven currencies annually. In mainland China, the team relied on manual processing of all cross-border payments requiring significant time, effort and costs, Yvonne Yiu, Co-Head of Global Payments Solutions, Asia Pacific at HSBC who worked with Philips on the project tells Treasury Today. “The groundbreaking approach reduces hundreds of multi-currency transactions in mainland China per month into a single RMB cross-border transaction, streamlining operational processes.”

HSBC and Philips held multiple rounds of discussions with the People’s Bank of China (PBOC) in Shanghai, ultimately obtaining consent to roll out the first RMB cross-currency netting solution of its kind in mainland China. The structure also leverages Philips’s existing cross-border cash pool set up under the PBOC’s free trade enterprise (FTE) structure, she says.

Every month, the intra-group cross-border foreign currency payments and receipts related to the Chinese entities are converted into RMB using the in-house bank exchange rate. This serves as the basis for calculating the RMB netting settlement.

The multiple cross-border transactions in different currencies within the same calendar month are netted into a single transaction, with RMB as the settlement currency. This is settled cross-border between Philips’ domestic netting centre and the Group’s overseas netting centre. At the same time, each company/division settles a single netting transaction in RMB with the domestic netting settlement centre.

The strategy aligns with China’s strategic efforts to promote RMB internationalisation. And by iintegrating mainland China entities into the global netting process, it further standardises and simplifies operational workflows. The reduction of cross-border transaction volumes reduces associated costs, and the solution also enhances liquidity through unlocking working capital in mainland China and optimises cross-border settlement processes. Improved FX risk management flexibility, with access to offshore renminbi (CNH) FX rates has also streamlined automated processes for payment and accounting.

Yiu argues that cross-currency netting is one in a line of innovative solutions coming out of the bank. For example, HSBC has rolled out ECom Direct, which allows merchants on the mainland to collect RMB-denominated sales receivables directly from overseas e-commerce platforms. She says that HSBC is also among the first banks in China to offer both wholesale and retail eCNY services.

“China is a dynamic market that embraces financial innovation,” she says.

Other examples include SpeedX, a truly ‘document-less’ cross-border settlement solution for qualified onshore customers and in Oct 2024 the team went live with pilot customers that were looking for simpler foreign currency settlements.

“We hope Philips strategy will inspire other corporates in the region,” she concludes.