A study by SunGard and EuroFinance Research Services has revealed a gap between the plans of China’s treasurers and the ambitious goals of the companies they work for. Most of the respondents of the survey, entitled ‘Treasury’s future in China: Time to act?’, said that their firms had plans to expand outside of China. Many agreed that their company’s successful expansion was partly dependent on better treasury operations. Yet only a few describe ambitious plans to improve treasury systems, and some said that they had no plans to upgrade treasury at all.
This result comes amid a general admission by the corporate treasurers that their operations in China need improvement. Many of the respondents said that they were dissatisfied with the cash flow visibility at their companies. Many admitted challenges in integrating information within treasury. Others mentioned challenges in producing a coherent risk management strategy, with significant treasury involvement.
Some of this, the study argues, is a sign of the times. Like their multinational counterparts, Chinese company treasurers appear to have their hands full dealing with the effects of a volatile market and the dramatic economic downturn worldwide. But, unlike treasurers in the developed world – who admittedly have better tools at their disposal in the form of more sophisticated treasury systems – China’s treasurers are not yet harnessing treasury to full advantage in difficult times.
This conclusion, the study argues, need not imply that China’s treasurers are unwilling to succeed. On the contrary, the report produced a general portrait of treasury undergoing enormous change in the People’s Republic, as such disruptions as the global credit crisis and the seizing up of some of the world’s largest banks have presented challenges and opportunities to Chinese-owned corporations.
Those challenges include a severe decline in exports that has delivered a punishing drop in revenues to companies reliant on selling goods and services overseas. Another challenge is an increasingly competitive landscape within China for consumer markets, which, though growing, are still relatively small in global terms.
While the export problem is severe, and internal competition is stiff, China’s companies still enjoy relative good fortune compared to many companies based elsewhere. Some sectors in the consumer markets – from retail to handsets – are still growing, in contrast to falls in demand in the US and Europe. Moreover, China’s banks have emerged from the global credit crisis relatively unscathed, having avoided sub-prime debt. These banks have retained the funding clout to support Chinese company growth and cross-border expansion.
According to the study, plans for cross-border expansion are emerging, but these plans could be hobbled by lapses in treasury acumen. More than half of the treasurers said that their companies have plans to expand. In this context, a significant number of treasurers (one third of the respondents) said that a treasury upgrade is necessary to support their company’s cross-border expansion plans.
Across the board, the treasurers painted a picture of Chinese company treasuries in need of an upgrade. They reported a relatively low level of sophistication in their treasury operations. A key figure here was the use of spreadsheets exclusively for treasury activities, rather than treasury workstations or more sophisticated treasury systems. Ten per cent of the Chinese company treasurers reported using spreadsheets only, while another 26% said that they currently used only spreadsheets, but had plans to deploy treasury systems in the near future.
Few treasurers were very satisfied with cash flow visibility. While about 80% said they had some satisfaction with the transparency of cash flow, only 6% were very satisfied. As elsewhere, the visibility of cash flow has become increasingly important in China as the nation is affected by the global downturn. Visibility of cash within the working capital cycle can provide huge advantages to freeing cash flow for use in investment and as a cash buffer when other forms of funding are scarce. In comparison to local company responses, more multinational companies polled in the survey were very satisfied with cash visibility (13%) and more were very unsatisfied (29%), suggesting that multinational treasurers were taking the issue more seriously.
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