Treasury Consolidation in Asia

With economic growth in lots of western countries either slow or stagnant, many companies are looking east for their next big market opportunities. Asia – including China, which is now the world’s second biggest economy and home to 1.3 billion increasingly wealthy consumers – represents an increasingly attractive source of revenue for global multinationals that may be struggling at home.

This expansion, while generally good for the companies as a whole, presents a number of headaches for treasury managers as they manage transactions across regions and multiple time zones. Compounding this challenge in Asia is the fact that, with diverse clearing systems, regulations, cultures and currencies, the market lacks the continuity of the US or EU markets. Nevertheless, many multi-nationals, having established an Asian presence, are now looking at how to optimise and streamline their treasury operations in the region and find the right balance between centralisation and local banking infrastructure.

Fundamentally, the basis of a decision of whether or not to centralise in Asia and indeed what to centralise don’t vary too much from the same decisions you would have in the west, as demonstrated earlier this year in this gtnews article on treasury centralisation. There are, however, a few unique considerations that need to be kept in mind for any company considering consolidation in Asia.

Partnerships Count

Since China’s entrance into the World Trade Organisation (WTO) in 2001, Chinese financial markets have been on a path of continual reform. While to some, the regulatory changes may seem incredibly slow, they actually represent a very pragmatic approach by the government to gradually expanding the market without actually risking it.

A significant portion of the reforms have focused on foreign banks and what they are allowed to do in the Chinese market. Although these changes have opened up the market significantly, the actual products and services that these banks can provide to both domestic and multinational clients is still quite limited. For this reason, many of the global banks have set up relationships with local banks to subcontract the work out on behalf of their clients.

On paper, this looks like a reasonable solution and in most markets it would be. The challenge in China is the fickleness of the markets. Comments from the government, shifting alliances and a host of other factors can affect how effective any partnership in the market is; a partnership in China can dissolve very quickly, leaving a foreign bank with a challenge of how to plug the gap.

For this reason, it is critical for multinationals to firstly, fully inventory, understand and prioritise exactly what they need from their partners in any particular Asian country and secondly, scrutinise their global banking partners to ensure that they are up to the task and committed to the market.

This evaluation isn’t as simple as just talking to the partner themselves, but actually talking to other customers, other banks, regulators and industry experts to really understand the organisation’s positioning. How committed are they to the market? How are their local relationships? What are their market challenges?


Much has been written about the lack of harmonisation across the Asian payments landscape. Largely due to the differing cultures, regulations, market practices, etc. that permeate the region, there is no current unified payment system similar to single euro payments area (SEPA). For those same reasons, it is also likely any accepted pan-Asia payment system will come from the adoption of a national system that is gradually accepted as a standard by the region, rather than by countries sitting around the table and determining what makes sense.

Some countries are making progress on this. Hong Kong touts itself as a key settlement hub in the region and has put the infrastructure and relationships in place although it is unclear if this will be enough to woo all the region’s payments. In addition, although Hong Kong largely operates on its own, it is a part of China, which has both advantages and disadvantages. Look for future movements in the payments landscape that will make things easier, but for now, figuring this into your consolidation strategy is important.

Cash Considerations

While it is not a problem in the relatively homogenous environments of the US and Europe where cash can more relatively freely, in Asia, regulations controlling capital flows complicate things quite a bit, especially in countries like China, India and Vietnam where there are strong currency controls in place. In China, although the reminbi is gradually becoming more accepted as a trade currency and domestic cash pooling has been active for a few years through an entrustment loan legal framework, actual short-term cross-border cash-pooling directly involving the reminbi as cash is impossible.

There are no immediate solutions. The State Administration of Foreign Exchange (SAFE) has introduced two regulations in 2009 that allows for foreign currency cash pools within China (not cross-border) and for Chinese companies to move funds cross border to overseas subsidiaries which helps a bit. A partner with a strong network can help too, for example by using notional pooling where the partner credits a specified amount to the company’s bank account outside the country while simultaneously deducting the amount from their account in the country. So when you are evaluating whether or not to centralise, you shouldn’t assume that the same pooling strategy that is possible in other locations would be possible in China.

You also need to pay attention to your foreign exchange (FX) risk when dealing with the reminbi. We haven’t mentioned this before, but although the general consensus is that the reminbi will appreciate in relation to other currencies and the Chinese government made supportive statements a few months ago, the opposite has actually happened and the currency has weakened against the dollar and other currencies. If you’re leaving the money in country, as most companies are, it is not an issue, but it is a consideration for your long-term cash strategies.


This brings us to the last consideration: relationships. Although it seems incredibly trite to say, relationships are still key in Asia. Knowing the regulators and other key stakeholders in any jurisdiction is very important. These relationships will help you to be aware of upcoming changes in regulation that might affect your business as a whole and your treasury strategy, and will also help you should you run into any road blocks on the way. As Philippe Jaccard from Citi mentioned in another gtnews article in 2010: “If a company is perceived as a ‘good corporate citizen’ and also works with a bank that has an impeccable regulatory track record, then much can be achieved.”

We’ve seen this to be the case numerous times with our clients as well. The path to China is littered with companies that failed to execute ithe country because they didn’t pay enough attention to relationships. Even if you do have local partners that are helping you or a global bank with local partners, don’t assume that it’s enough. Make sure you’re engaged in your key focus countries.


What is clear is that the Asian market is developing rapidly and offers some of the best opportunities for multinationals in the world today both in terms of sales and (lower) costs. The established financial centres of Hong Kong, Tokyo and Singapore are rapidly increasing linkages with the developing Asian countries while the government of China pragmatically enacts market reforms to open the banking system further. As these transitions happen, moving back and forth between centralised and local infrastructure will become easier, but until then, it pays to be cautious and prudent when re-evaluating your consolidation strategy because, although it is getting easier, there are still challenges and pitfalls.


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