Mastering Cash Management from a Chinese Perspective

Cash management strategy has become an important part of day-to-day business decisions for companies in the People’s Republic of China (PRC) over the past two decades. Chinese state and privately-owned companies and financial institutions have become increasingly sophisticated and open to the use of cash management tools and technologies.

This article outlines four cash management models adopted by Chinese companies and the respective pros and cons of each of these models.  It then looks at the role that commercial banks in China can play in assisting Chinese companies to improve their cash management, in response to rising demand for better treasury, cash management and business efficiency.

Cash Management Models Adopted by Chinese Companies

Cash management models adopted by Chinese companies can broadly be categorised into the following four systems:

  1. Management through a group finance company (GFC).
  2. Management through a treasury and clearing centre (TCC).
  3. Management through a GFC and a TCC.
  4. Management through multiple TCCs.

GFC model
The GFC model is typically used by large Chinese entities with many group members. To establish a group finance company, a Chinese entity has to obtain licences from the People’s Bank of China (PBOC) and the China Banking Regulatory Commission (CBRC). A GFC is a non-banking financial institution (from the PRC regulatory prospective) incorporated as a limited liability company with a registered capital of no less than renminbi (RMB)100m. It operates as an in-house bank (IHB) to provide financial management services to its parent (usually a sole shareholder of the group finance company) and group members controlled by the parent. Its main function is to centralise the management of, and to increase the efficient utilisation of, the cash assets. Many large Chinese companies have adopted this model. At the end of 2011, more than 100 GFCs were licensed nationally.

TCC model
The TCC model is adopted by large Chinese companies that do not meet the requirements for establishing a GFC. It is an internal treasury unit without a separate legal status, which sits at the group parent level. A typical Chinese TCC usually has the following functions:

  • Setting up separate internal accounts for all member companies.
  • Settling outgoing and incoming payments for trade activities undertaken by the member companies.
  • Monitoring cash transfers in and out of the TCC accounts.
  • Approving applications from member companies for excess cash in accordance with the relevant group’s treasury and cash management policy.
  • Sourcing external loans or credit facilities and facilitating the borrowing for member companies.

GFC plus TCC model
A number of major Chinese companies have set up both a GFC and a TCC to manage their cash assets. For these companies, the GFC primarily acts as a lender to provide funding to support the member companies’ investment activities. The TCC focuses on monitoring whether the member companies are able to use their cash assets efficiently and on managing the cash balance in each member company’s accounts.

Multi-TCC model
Historically, many Chinese companies have tended to have a highly complex vertical management structure. As a result, more than one TCC has to be used to service daily cash requirements from member companies. With more and more companies moving towards a horizontal management structure, in an effort to reduce overlapping management layers and to improve efficiency, the multi-TCC model will eventually become less common among Chinese companies.

Pros and Cons of GFC and TCC Models

As a GFC can effectively act as an IHB for a group, many treasury and cash management services that formerly were provided by commercial banks can be provided by the GFC. This will help the corporation to retain the income from cash management services. Some examples are:

  • Taking deposits from member companies.
  • Receiving and making payments for member companies.
  • Providing guarantees.
  • Providing entrustment loans to support member companies’ investment activities.
  • Commissioning of loans and investment between member companies.
  • Acting as an internal clearing and settlement centre to facilitate payments to and from member companies.
  • Sourcing external loans or credit facilities on behalf of member companies.

A GFC may also need to apply to the CBRC regulator for authorisation to issue bonds to third parties or underwrite bonds issued by its member companies. It can utilise the group cash, which it manages to invest in financial institutions and marketable securities; or offer consumer credit, buyer’s credit or finance leases to support the sales by its member companies of their products.

The CBRC imposes stringent rules on GFCs which offer financial services to a third party. For example, to engage in finance leasing, a GFC must increase its minimum registered capital to at least RMB500m. GFCs are currently not licensed to engage in any cross-border transactions unless they are helping their member companies to make or receive cross-border payments.

As mentioned, a TCC can also act as an IHB for its member companies. As it does not have a separate legal status, incomes from its cash management services for member companies are not taxable. However it cannot, on its own, provide any financial services to a third party including issuing or underwriting bonds or engaging in any structured finance activities open to a GFC.

Working with Commercial Banks

Although GFCs are permitted to set up multiple branch offices and representative offices in different locations within China, the setting-up costs are high for some very large Chinese companies with a wide geographic coverage. It may therefore be more cost effective for them to work with the bigger commercial banks whose existing branch office network coincides with the geographic locations of their member companies. Top PRC commercial banks can offer tailor-made internet banking software packages for their major customers. With the assistance of such secure online banking platforms, major Chinese companies can provide their member companies with daily banking services as required through their GFCs or TCCs.

Compared with large companies, small and medium-sized enterprises (SMEs) in China rely heavily on the services offered by commercial banks for their treasury and cash management needs. Traditionally PRC commercial banks have focused their services on their large clients, in particular large state-owned companies, and have made little effort in designing banking products and services for SMEs. This situation may be starting to change; recently there has been evidence that PRC commercial banks are shifting their focus from larger companies to SMEs to win business in cash management services. The reason for such a shift is two-fold:

  1. The central government issued a guidance, echoed by many other government organisations, requesting that Chinese banks support smaller companies, which are an important driving force for the economy but find it increasingly difficult to secure finance from domestic banks.
  2. Commercial banks have seen their income from large PRC companies decrease due to the favourable rates on bank loans they offered to major customers, while their income from intermediary services is also shrinking due to the low level of trade activities of some of those major customers.

China Merchants Bank (CMB), the fifth largest commercial bank in China, is one of the banks that has managed to win substantial business from small and medium-sized companies. Other major PRC commercial banks, such as Bank of China (BoC) and Agricultural Bank of China (ABC), are also offering a variety of tailored cash management services to smaller companies.


An efficient and reliable treasury or cash management system is critical to the success of companies of all sizes. Chinese companies, after nearly two decades of reform and restructuring, are eager to improve their treasury management systems. The use of GFC and TCC models are common among Chinese companies, many of which have established separate centres to research and develop IT platforms to further improve the companies’ internal cash management systems. However, implementation of a modern treasury and cash management system often requires substantial group restructuring. This means that it takes some time for a company subject to internal change to realise any benefit. As a result management at some Chinese companies, particularly those that have little exposure to international business, may view a GFC model as too costly and will feel more comfortable staying with the traditional multi-TCC model.



Related reading