During the past few years China has attracted investment by foreign multinational companies. With its entry into the World Trade Organization (WTO) on 11 December 2001, China promised to further open up its market to foreign goods and services, and to welcome foreign investment in the following five years in previously restricted sectors such as banking and financial services.
However, China’s cash management environment still provides many impositions and obstacles to challenge corporate treasurers. Moreover, unwritten local customs and practices, coupled with the lack of written regulations, do not ease situation. And making this even more complex is the fact that the regulations are changing all the time.
Therefore, “many companies […] still find it challenging to implement comprehensive cash management arrangements.”1Often complex regulations, foreign exchange (FX) controls, unique operating conditions, and developing clearing and banking infrastructures complicate the implementation of cash management techniques widely used elsewhere in the world.
Hence, this paper introduces the reader to the complex requirements, impositions and obstacles of cash management in China. In this paper the author focuses on two cash management instruments,nettingandcash pooling,and presents the associated dilemmas. Furthermore, the author highlightsentrusted loansas an alternative solution.
In the course of the paper it becomes clear that implementing cash management instruments requires testing the boundaries of regulation and technology. Meanwhile, but still limited to a few selected MNCs domiciled in certain areas, pilot programs arise relaxing FX restrictions and allowingcash poolingas well asnetting.However, despite China’s fast evolving banking and cash management environment, some techniques, e.g.netting,are basically prohibited or at least prevented by extensive FX authority regulations. While some of the cash trap situations can be avoided through proper documentation and careful planning regarding capital structure, others can be handled by implementing particular solutions. The latter holds forcash pooling.Besides processingnotional poolingto avoid a prohibited intercompany loan creation,entrusted loanscan reduce the operational activity burden on a company’s treasurer.
Inhaltsverzeichnis (Table of Contents)
- Executive Summary
- Contents
- List of Figures
- List of Tables
- List of Abbreviations
- Introduction
- The problem
- Objective
- Methodical direction and structure of the paper
- Cash management
- Definitions and classification
- Aims and objectives of cash management
- Management of cash flows and balances
- Investment of liquidity surplus
- Exposure management
- Selected cash management instruments
- Netting
- The concept
- Requirements and potential problems
- Cash Pooling
- The concept
- Requirements and potential problems
- Netting
- China's cash management environment
- Institutional aspects in China
- Central bank
- Foreign exchange authority
- Banks
- Bank account structure and currency controls
- Local currency bank accounts
- Foreign currency bank accounts
- Temporary bank accounts for non-resident companies
- Payments
- Systems
- Local Clearing House System
- Electronic Interbank Network
- China National Advanced Payment System
- Commercial Banks' In-house Payment Systems
- Instruments
- Systems
- Institutional aspects in China
- Implementing selected cash management instruments in China
- The dilemma of netting
- The dilemma of cash pooling
- Entrusted loans as a potential solution
- Conclusion
- References
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to provide an overview of the complex cash management environment in China, focusing on the challenges and opportunities presented to multinational companies. The paper examines the key cash management instruments of netting and cash pooling, highlighting the dilemmas faced by companies attempting to implement these solutions. It also introduces entrusted loans as an alternative solution.
- Cash management in China
- The dilemma of implementing netting and cash pooling
- The potential of entrusted loans as an alternative solution
- The impact of regulations and technological constraints on cash management practices
- The evolving banking and cash management landscape in China
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter sets the stage for the paper by introducing the challenges faced by multinational companies in managing cash in China. It outlines the paper's objective, methodological direction, and structure.
- Cash management: This chapter provides a comprehensive overview of cash management, defining its purpose, classifying its instruments, and discussing the essential aspects of managing cash flows, investments, and exposures. The chapter delves into the specific instruments of netting and cash pooling, outlining their concepts, requirements, and potential problems.
- China's cash management environment: This chapter dives into the specific institutional aspects of China's cash management environment, including the roles of the central bank, foreign exchange authority, and banks. It further details the structure of bank accounts and currency controls in China, as well as the various payment systems and instruments used.
- Implementing selected cash management instruments in China: This chapter explores the challenges and dilemmas of implementing netting and cash pooling in China, highlighting the regulatory hurdles and technological constraints. It then introduces entrusted loans as an alternative solution to overcome these limitations, explaining the concept and potential advantages of this approach.
Schlüsselwörter (Keywords)
The key keywords and focus topics of this paper include cash management, netting, cash pooling, entrusted loans, foreign exchange controls, regulations, China's banking system, multinational companies, and the evolving cash management landscape in China. These themes highlight the paper's emphasis on practical applications and the challenges and opportunities associated with implementing cash management solutions in a complex and rapidly developing environment.
- Arbeit zitieren
- lic. oec. publ. Jan Freidhof (Autor:in), 2006, The Dilemma of Cash Management in China, München, GRIN Verlag, https://www.grin.com/document/60265
