Treasury Practice

Location, location, location

Published: May 2015

As more and more corporates decide to establish a treasury centre in Asia, the competition between the different locations is heating up. In this article we look at the different considerations for corporates when picking a treasury centre location in Asia and also analyse how the big three – Singapore, Hong Kong and Shanghai match up.

View from aircraft window

It is no secret that, for many corporates, Asia represents a tremendous growth opportunity. Yet, the varying stages of development across the region and the complex regulatory landscape also represents a significant challenge for treasurers. Therefore, as European and US multinationals have grown their operations in the region they have often found it tough to manage cash remotely. To address this, many corporates have looked to centralise and establish a treasury centre in Asia in order to have a permanent treasury presence in the market and gain greater visibility and control over their cash flows.

Of course, centralisation doesn’t suit everyone, but if that is the path that the organisation wishes to follow, the next decision to be made is where to locate the treasury centre. Historically, for those operating in Asia, the choice has been between the region’s two key finance centres: Singapore and Hong Kong. The former was typically selected by those companies with a primary focus on South East Asia and the latter for those whose key presence was in North Asia, especially China. Today however, the choice is more complex as both the established and aspiring locations are locked in fierce competition to attract more treasury centres.

Key considerations

The decision-making process behind where to locate a treasury centre is multi-faceted, and all locations have positive and negative aspects, meaning that in many respects there is no correct answer. But there are some key considerations that must be taken into account when selecting a location. The first – and perhaps most important – is the overall strategic philosophy of the organisation: where are its key markets and where does it want to grow, for example? This initial assessment is likely to remove a number of locations where it wouldn’t make sense for the company to site the treasury centre, leaving a shortlist to be more deeply analysed.

The granular analysis of the shortlist should then focus on all the different factors that will have a significant impact on how the treasury operates and the advantages and disadvantages of basing the treasury centre in a particular location. A study recently conducted by EY asked over 300 corporates about their key considerations when selecting a location to establish a treasury centre.

Unsurprisingly, the regulatory environment (including FX controls) was highlighted as the most important factor. The second consideration highlighted was the cost and availability of talent, followed by the tax environment, political stability and access to capital markets. Other factors that didn’t make the top five, but were still considered important, include the location’s legal system, banking costs and capabilities, operating costs and also the living environment.

So how do the various locations in the region compare?


As well as being one of the world’s prominent financial centres, Singapore is also the region’s premier treasury centre location. “Its business-friendly environment, deep and well-educated talent pool and best-in-class infrastructure have made it the regional hub for the majority of Western multinationals,” says Victor Penna, Head of Treasury Solutions, Transaction Banking at Standard Chartered. “It has therefore made a lot of sense for organisations over the years to base their treasury centres in the city.”

Singapore benefits from a liberal regulatory environment, an excellent sovereign credit rating, a deep and liquid FX market and a legal system based on English common law. The city’s status as a financial centre also allows treasurers access to best-in-class banking services, with most, if not all of the major Western and Asian banks having significant operations in Singapore.

On top of this, Singapore offers corporates a strong incentive package to locate their treasury centres in the city in the shape of its Finance and Treasury Centre (FTC) award. The FTC offers qualifying corporates a concessionary tax rate of 10% on all fee income received from treasury activities and an exemption from withholding tax on interest payments. Further tax benefits can be gained through Singapore’s double tax treaty network, the most developed in Asia, reducing the withholding tax applied when carrying out functions such as intercompany lending and cash pooling.

The city-state is also considered a prime location for finding talent. Its history as a former British colony and its position as a regional hub for many multinationals means that it has developed a deep and well-educated English-speaking pool of talent. This is bolstered by talent from neighbouring countries across Asia, meaning that it is easy to find the language skills required to manage the diverse region. The city is also attractive when looking to bring in talent from overseas: “moving to Singapore is much easier than some other locations in Asia from a family perspective,” says Amit Sharma, Managing Director and Head of eCommerce and Channels, Asia Pacific at Bank of America Merrill Lynch (BofAML). “Thanks to its strong international schooling system and best-in-class transportation links to the rest of Asia as well as key locations in Europe and the US.”

The overall strength of Singapore as a treasury centre location for global and Asian MNCs (ex China and Hong Kong) is underlined in EY’s study. For all but one of the key considerations for corporates when choosing a treasury centre location, Singapore ranked above its competitors. The only area it fell short was because of its high operating costs which is unsurprising given the city’s status as the world’s most expensive.

Hong Kong

Hong Kong offers a similar proposition to Singapore. The territory has a business-friendly environment, and in 2015 was again ranked the ‘world’s freest economy’ – an accolade it has held for over a decade. The territory has a legal system based on English common law and a liberal and well-developed regulatory framework. It has a deep, well-educated, international talent pool and also, similar to Singapore, boasts a best-in-class transportation infrastructure that supplements its position in the geographical centre of Asia.

Its status as Asia’s other key financial centre means that corporates have access to a wide range of banking services, with 157 foreign and local licensed banks operating in the territory. Hong Kong is also the world’s largest offshore RMB centre and a key gateway into the international capital markets, making it a favourable location from which to raise capital.

“One area where Hong Kong has lagged behind Singapore is its tax regime which does not have as many double taxation agreements, nor extends concessions to companies with treasury centre activities,” says Sandip Patil, Managing Director, Asia Liquidity Head at Citi. The imbalance has meant that often the tax payment on intercompany loans are larger than any interest profit earned or acquired – a big consideration when establishing a treasury centre that will be making lots of these transactions. “The 2015/2016 budget has looked to remove this imbalance in taxation and encourage a corporation to operate a treasury centre in Hong Kong, bringing the territory’s incentive package in line with Singapore,” says Patil.

With such a similar environment to Singapore, Hong Kong has proved a popular treasury centre location, outside of mainland China, for Chinese multinationals that are expanding out across the world. As EY’s study highlights, Hong Kong was voted as the top location for seven out of ten key factors when selecting a location for a treasury centre by Chinese and Hong Kong MNCs.

“Companies that set up a treasury centre in Hong Kong, primarily do so because they have a significant presence in China,” says Standard Chartered’s Penna. It has been argued that unlike Singapore, where treasury centres have more of a regional focus, treasury centres in Hong Kong tend to be more China-centric and the market is set up as more of a gateway to China. In this respect, the territory’s biggest advantage may also be its biggest disadvantage when it comes to attracting a wider range of treasury centres that wish to cover the region as a whole.

This has however seen Hong Kong attract treasury centres from multinationals for whom China has become their key revenue driver in Asia. American multinational Johnson Controls is one such company that has moved from Singapore to Hong Kong. “When the company first moved into the region our key areas of growth were Australia and South East Asia,” says Marc Vandiepenbeeck, APAC Corporate Treasurer at Johnson Controls. “It therefore made sense to set up the treasury centre in Singapore.” However, as China began to be of material importance, and business weakened elsewhere, the company reconsidered its location. “Ideally we wanted to move to mainland China, but in 2006 the regulations were such that it wasn’t practical, so we decided to set up in Hong Kong as a gateway to China.”


Shanghai and China more broadly, is now a very different proposition for corporate treasurers than it was in 2006. The rapid pace of deregulation and modernisation has changed the treasury landscape and made Shanghai a realistic contender for multinationals deciding where to establish a treasury centre.

Johnson Controls, for example, has recently announced plans to move its Asian treasury centre from Hong Kong to Shanghai. “The company is establishing a corporate headquarters in China that will have equal authority to the headquarters in the US. And while there are still challenges when it comes to operating a treasury centre in Shanghai, they are no longer significant enough for the function to be left behind in Hong Kong,” says Vandiepenbeeck.

Before analysing the challenges that corporates still face in Shanghai, what have been the positive steps that China has made? Deregulation, boosted by the Shanghai Free Trade Zone, and then rolled out nationwide has been at the heart of the changes. For example, corporates are now able to plug the country into a global cash management structure and move cash in and out of the country without much restriction – a must for any treasury centre.

“China is also taking other important steps,” says BofAML’s Sharma, “for example the authorities have digitised the execution of FX payments. While this may seem a small change, it highlights that the regulatory easing is continuing and China is committed to making it easier for both corporates and banks to operate.” China’s position of 90 in the World Bank’s Doing Business survey, does however highlight that there is still a long way to go before China is as business-friendly as Singapore and Hong Kong.

Nevertheless, Shanghai is set to change further over the coming years as the government aims to establish the city as a global financial centre by 2020. Currently, the banking landscape in China is dominated by the big five state owned banks, but over 412 foreign institutions have operations in the country. Forty one of these are locally incorporated, as a result of the sector opening up further in 2006, allowing these institutions to offer a wider range of products and services to corporate clients in China. This has been an important step, as Vandiepenbeeck explains: “historically in China, the banks have been able to support us domestically but not so much regionally, as the quality of personnel wasn’t there. This has now changed drastically as the big multinational banks have invested significantly in the country and have bankers that can support our operations across Asia Pacific.”

While the talent in the banking sector may now be at a high level in Shanghai, can the same be said for treasury? According to the EY study, the answer is not quite yet, when compared to Hong Kong and Singapore. “This is a key area for Shanghai to focus on,” says BofAML’s Sharma, “the city is growing as a treasury hub but to continue this momentum it needs to build the global talent pool and quickly.” For Sharma, this is a big task because of the ease of a family moving to Singapore and Hong Kong. “These locations have a large global expat community, English is a native language and there is a strong international school system, making them much more attractive locations for families.

Shanghai is also lagging in other areas. For example, it does not offer an incentive programme to match that offered by Singapore and Hong Kong. The infrastructure in Shanghai is also behind that of Singapore and Hong Kong, meaning that travelling in and out of the city can be a challenge. Also, the legal system may not be familiar to corporates outside of China, requiring experts in local legislation to be hired to resolve any legal issues.

So will Shanghai become the primary treasury centre location in Asia in the near future? For Standard Chartered’s Penna, this remains to be seen: “it will depend on how aggressively China continues to liberalise, how quickly Shanghai becomes a global financial centre and also how other regulation and incentives develop. Ultimately, if Shanghai can offer a proposition as good as, or close to, what Hong Kong offers, then those corporates with a critical mass in China may think that it makes sense to move their treasury centre to Shanghai, especially if they have already established their regional headquarters there.”

Greater competition

While Singapore, Hong Kong and Shanghai are leading the way in the race to become the region’s top treasury centre location, they are by no means the only ones. “Most countries in the region are analysing the value of positioning themselves as a treasury centre location. This is happening in India, Malaysia, Thailand and even Macau, and I suspect that these efforts will continue,” says Citi’s Patil.

Outside of the ‘big three,’ Malaysia is perhaps the location gaining the most ground, thanks to its Treasury Management Centre (TMC) incentive package that offers corporates a 70% tax exemption for five years on income arising from qualifying treasury services. Malaysia hopes that by offering this package, local corporates will be encouraged to build a treasury centre in Malaysia, and that this, in turn, will grow the talent pool to eventually attract multinationals.

Thailand is offering a similar proposition, although currently there are only a handful of treasury centres in the country. This is primarily because there are plenty of regulatory challenges that limit the functions that can be performed by the centre. For example, capital controls limit cross-border inter-company lending and there is limited liquidity locally in foreign currencies. Trapped cash is another major issue.

The long view

So can Thailand, Malaysia and other locations in the region truly ever compete with the ‘big three’? Citi’s Patil thinks it is unlikely any time soon: “I don’t think we will see a meaningful new centre in Asia yet because there is such a large gulf when you look at the key parameters between the established centres and the aspiring ones,” he says. “There will of course be some companies domiciled in these countries, or corporates from outside with critical mass in them that will base themselves there because it makes sense for the business. But if the company has operations across the whole region then the propositions are too strong from other locations.”

Despite this, increasing competition can only be a positive for corporates. After all, it is encouraging various countries to make themselves more welcoming to treasury operations, thereby reducing the complexity of running a treasury in the region.

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