Show Report: EuroFinance Asia 2013 – Day 3 Treasury Focus Turns to China

The regional treasurer for Intel, Robert Yenko, began the final day of this year’s EuroFinance Asia 2013 conference by explaining how one of the latest developments, cross-border cash pooling, works at the computer chip giant. He said that about 15% of Intel’s sales, at about US$8bn per year and US$1bn of its cash portfolio, are in China. 

In 2004 China’s State Administration of Foreign Exchange (SAFE) agency introduced rule 104, which allows domestic cash pooling of US dollars (USD) and cross-border lending for companies with a regional headquarters in China. Intel set up its treasury structure to take advantage of the rule. However SAFE subsequently issued rule 49, which re-imposed a prohibition on cross-border lending, illustrating the vagaries of doing business in China. 

In 2012, Intel China was invited by SAFE to participate in the first batch of a pilot programme for USD cross-border cash pooling and quickly accepted. Intel received approval last December and implemented the programme a month later. “This is the holy grail for treasurers in China, being able to move cash out of the country,” Yenko said. “It’s a big win for us.”

The programme is in two parts. The first is a cross-border cash sweep, where corporates pool their cash in China and eventually move it to a regional cash pool outside the country. Corporates open an international foreign currency master account (IFMA) at an onshore bank to concentrate cash across the border, with a quota on the amount. 

The second part is for centralisation of payments and collections, whereby the regional headquarters centrally manages and processes all payments in China. The company will be able to manage, process and pay-on-behalf-of (POBO) the other subsidiaries in the country. While this is nothing new elsewhere in the world, it is a first for China. 

While the programme requires significant resources for documentation and reporting, Intel is able to manage liquidity better and get improved returns. Yenko added that this pilot scheme is in line with China’s ambitions to develop Shanghai into a regional treasury centre (RTC) that can rival Singapore and Hong Kong. 

Payment and Collection Management in China

Akzo Nobel’s Greater China treasury manager, Jessie Li, explained at EuroFinance Asia 2013 how the Dutch paints to chemicals multinational corporation (MNC) set up payments and collections management in China, as part of a global programme to transform its treasury. 

In China Akzo Nobel faces many constraints. For example, the company cannot make China part of its in-house bank (IHB), and/or conduct payments or collections-on-behalf-of (POBO/COBO). 

In the face of such restrictions, AkzoNobel has taken what action it can in China to enhance performance. For example, the company was able to consolidate its bank accounts, set up an alternative for a tax-efficient pooling structure and intra-company loans, adjust its structure to improve cash management, and use an electronic payment system. It started making these changes in 2010 and to date has consolidated from 44 entities to 31, shifted from 15 banks down to two key partner banks, reduced its bank accounts by about 40% and consolidated from 10 enterprise resource planning (ERP) systems to three. The company also has an initiative to set up a shared service centre (SSC). 

Li said that the project was a huge one that ultimately paid off. AkzoNobel was able to integrate its system and standardise its processes, thereby obtaining greater efficiency and cash visibility as well as an improved infrastructure in China. 

Finger Lickin’ Good: Operational Excellence in China

Katherine Wei, director of treasury at KFC-to-Pizza Hut operator Yum! Brands explained how her company, which won the Best Operational Excellence in China award at the show, has structured its finance and treasury in China. 

“We are cash-rich as a company,” she said, so the most important strategies are to put money into high-return investments and direct it to opportunities with high growth potential. China clearly fits those goals, as Yum! has achieved an average return of about 30%. In just over a decade it has increased its number of outlets from 600 to 6,000, and plans to triple that figure over the next 10 years – meaning that it is opening a new outlet about every 18 hours. 

In the early days of its China expansion, when Yum! opened a new outlet and found a nearby bank it opened an account there. Realising that the model was inefficient, it worked with a local bank to set up a new model and use a far more efficient centralised cash management structure, with practices including pooling and sweeping of cash. 

Treasury worked with the supply chain, development and logistic teams to make a seamless transition to enterprise resource planning (ERP), said Li. To manage surplus cash and avoid counterparty risk, the company partners with banks on initiatives such as deposits, money market funds (MMFs) and direct sovereign bond investments. Treasury also liaised with IT in structuring payments in its outlets to meet customers’ preferences, such as offering mobile orders tied to mobile payments. 

A further initiative has seen Yum! develop new practices to find and train the right people for treasury. Wei said that the company has just two treasury teams, one in the US and one in China. “China manages more than half of global cash. By the end of last year we accounted for 60% of profit for all of Yum!,” she added. Along with local training, Yum! also places staff from China on assignments in the US so they can develop the skills to manage globally.  





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