China Inc spreads its wings
The ‘One belt, one road’ initiative has been widely spoken of since it was first unveiled by President Xi Jinping in 2013. As part of the government’s drive to transform its economy from one based on manufacturing to one based on services, the ambitious initiative aims to restore the country’s old land and sea trade routes and to boost economic connectivity between Asia, Europe and Africa.
Four years since its unveiling we are beginning to see evidence of the initiative in action. In 2016 China’s investment around the world in non-financial assets grew almost 50% in 2016 from the previous year to approximately US$175bn. A lot of this money has been invested by private enterprises who are spreading their wings for the first time into international markets.
At present, property and infrastructure projects like toll roads and railways are popular areas of investment, but we are also seeing some consumer facing Chinese companies make headway overseas. Technology companies like Huawei, for instance, are becoming household names in Europe as they penetrate the mobile market.
It is an exciting time for many of these companies moving overseas, but it also creates numerous challenges. This is especially true from a treasury perspective given that companies will now be exposed to multiple markets and currencies. The need to establish a professional treasury department is therefore a must – a lot of domestic companies in China still do not have a standalone treasury function.
From this base, there will be a need to draw up a well-informed and well-defined treasury policy, put in place various cash management structures, understand the regulatory requirements in different jurisdictions and to leverage technology so that processes can be automated and streamlined. This will be a familiar narrative for many of our readers who have set up regional treasury operations in Asia for western multinationals.
Another decision that will have to be made is where to establish a treasury centre to manage the group’s international operations. Unsurprisingly, Hong Kong is a frontrunner here, given its lack of currency controls, low taxation and its dominant role as an offshore RMB centre. Singapore is another strong contender for similar reasons and there is a littering of Chinese regional treasury centres in the city state. Of course, the decision-making process behind where to locate a treasury centre is multi-faceted, and all locations have both positive and negative aspects, meaning that in many respects there is no correct answer.
More to come
What is clear is that we are only at the beginning of the road and there is more to come from China’s OBOR initiative. A lot more will become clear in mid-May when 28 heads of state and many other dignitaries will gather in Beijing to discuss China’s new Silk Road initiative. Treasury Today Asia will stay abreast of these developments and what impact it might have on treasury departments around the world.