In this interview, J.P. Morgan’s Margaret Yao, MD Asia Pacific Sales Executive, Treasury Services, and Diane Quinn, Managing Director Sales Segment Executive, talk about treasury consolidation and other emerging trends in the Asia Pacific region, with a specific focus on China.
Margaret Yao (MY)
MD Asia Pacific Sales Executive, Treasury Services
Diane Quinn (DQ)
Managing Director Sales Segment Executive
While J.P. Morgan continues increasing its presence and capabilities, perhaps we can start by you telling us more about what that means to the Asia Pacific region, particularly for companies operating in China?
DQ: Asia Pacific is a very important region for us. What we are finding is that our US and European MNC clients have a real emphasis on the fastest growing region in the world. In addition, we have been seeing a lot of our clients who have been operating in the region for some time, are starting to do the same sort of consolidation as we saw in Europe about ten years ago by putting in shared services centres, rationalising processes, consolidating bank accounts wherever possible and really looking for opportunities to help manage trapped cash in the region.
MY: With an Asia Pacific heritage stretching back many decades and a presence in 15 markets around the region, J.P. Morgan’s core focus has always revolved around delivering an exceptional level of service to our clients. Across the region, Asian corporates are turning their eyes to the global stage, and at the same time, we’re seeing a much greater demand from global companies seeking to build their footprint in Asia. This two-way trend is emerging as a defining characteristic of the region’s dynamic growth story, and as a firm, we are innovating, investing and hiring to ensure we continue to provide a leading suite of solutions to meet this client demand.
This year, we celebrate our 90th anniversary in China, an important milestone in an exciting market. With five branches in China and growing, we are committed to delivering holistic solutions to our clients in China, who are rapidly growing in confidence, sophistication and ambition as they shift their focus offshore. Supporting our China clients with a range of services, notably our RMB international trade settlement program capabilities and our recent partnership with SINOSURE, we are well placed to continue playing an important role in the development of China’s financial markets.
How does your service model differ from supporting domestic companies in the region to that of the subsidiaries of US and/or European companies?
MY: Tailoring our service models to meet the needs of our wide and varied client base is a fundamentally important aspect of our client servicing proposition. To support our domestic clients, we provide dedicated regional and in-country teams covering client servicing, product development, operations and technology, among others, ensuring that we provide on-ground support for their operations and an infrastructure that allows them to integrate effectively and efficiently with their regional subsidiaries. Understanding the local regulatory environment and how it is evolving, the unique business practices of a particular market and the challenges that our clients face in their day-to-day operations are also crucial. At an international level, we also have dedicated teams covering outbound requirements for Asia Pacific headquartered companies, and we draw on our regional and global franchise to ensure we deliver on their intra-Asia, Europe, Middle East, Africa and Americas requirements.
DQ: We believe we have a different service model to some of our other competitors in the industry. What we find is it’s really important to put our service people in the country where our customers are located. So, if clients are locating their main operations to China, Singapore, Hong Kong or Malaysia we will put their key customer service person in that country.
Having said that, we have a lot of flexibility in how we handle customer service so if a customer deals from a centralised location out of say, California for example, and they manage all of their business globally, we will locate their dedicated service person close to them.
Typically, our service model is tailored client by client. So if we have a client running a regional treasury centre (RTC) in Singapore with treasury functions in say six key countries in the region, we work with the client on establishing the most appropriate service model to meet their requirements; it could be a single service person for the region or a service person who supports the Singapore RTC plus six in-country service persons to support local needs.
J.P. Morgan and SINOSURE recently signed a landmark Export Credit Insurance policy agreement. Can you explain what this is and how it will help Chinese companies?
DQ: Firstly, we find this an extremely exciting initiative and it is similar to what we’ve done with the other Export-Import institutions. Under the agreement we will provide a range of trade finance solutions to Chinese exporters, enabling them to enter new markets they previously couldn’t consider and will assist these enterprises by providing trade finance operations, improving their efficiency and reducing their risk. What’s so important about this credit insurance policy is that it facilitates providing important capital at the best possible price because we have a policy in place that helps us manage the risk appropriately so it provides credit to companies that need credit and facilitates business growth and revenue. This is a fairly recent project for us but it is going very well so far.
MY: Our new partnership with SINOSURE will be instrumental in transforming the way Chinese companies conduct their business. By simplifying the often complex cross-border trade finance process, Chinese companies can focus more intently on building their business outside China while at the same time capitalising on their tremendous growth opportunities across the region. Following last year’s free trade agreement between China and the ASEAN nations, sales to the region have grown by 30%. This agreement will help Chinese companies make the most of this opportunity.
How would you summarise your clients’ key needs in the region and how are you responding to them?
MY: As our Asia Pacific clients become increasingly sophisticated, we are seeing an overwhelming thirst for deeper insight into treasury management processes, tools and best practices as they move to the next level. Our client partnerships are based around delivering to our customers a strategic advisory service that will help them gain a competitive edge over their peers and better position themselves to achieve their growth objectives – whatever those objectives may be.
From a practical perspective, we’re seeing some interesting trends. For example, there is a commonality between clients in this region and clients in Europe or the US, in the sense that treasury now enjoys much greater visibility as an integral function to a company’s business, a higher profile which in turn places greater demands on the treasurer. Accordingly, the treasurer’s remit is expanding quickly, with previously peripheral considerations such as involvement in non-traditional treasury re-engineering projects, including cards, insurance and enterprise risk management, to name just a few, moving to the centre of the conversation. Given the diverse basket of currencies in the region, combined with some unique local market regulations, managing FX and liquidity risk is front and centre in discussions with our Asia Pacific clients. Finally, trapped cash as companies accumulate earnings is often an issue in certain markets, in which case, enhancing yield and mitigating counterparty exposure becomes a key priority for clients.
DQ: This too (trapped cash) arises in many conversations I have in the US with our MNC’s doing business in the region. Conversations around visibility into what’s going on from a cash perspective are common. What we find is our clients need information to better understand the different regulations in the region. So for example, an operating facility in China will need help in getting the necessary regulatory approval and we are finding this is a frequent request coming through.
As Margaret says, liquidity management is a key theme and many of our clients have significant sums of trapped cash in the region. This is especially true for US MNCs generating anywhere between 50-70% of their revenues offshore and they want a bank that can help them to maximise their working capital in those trapped cash countries. We are developing and advising on optimal liquidity management structures in the region which are pretty ground-breaking.
We are also responding to the need among our clients for multi-banking capabilities. J.P. Morgan has strong relationships with many of the largest banks in the region which ties us to the best banks in-country through the use of some sophisticated technology.
Finally, as you continue to increase your presence in China, what are the fundamental differences of operating there as opposed to the rest of Asia Pacific and what should a foreign subsidiary look at doing to mitigate any potential risk?
DQ: I would say the fundamental difference of operating in China versus the rest of the region, are the regulations and the fact it is a restricted country. The rules are rapidly changing in that market and, as a bank operating in China we need to stay abreast of these changes.
As a client sets up its business practices in China I think that it’s really important they work with a bank that has access to the regulatory bodies and also has a strong and deep expertise in that country and understands what the changing rules and regulations are so they can advise on how a client is structuring to avoid any potential pitfalls and to mitigate risk wherever possible. J.P. Morgan remains committed to helping its clients in China.