Transaction banks step up to multinationals' RMB liquidity challenge

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By:
Duncan Kerr
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Deutsche Bank has become the latest bank after Citi and HSBC to launch a service enabling the movement of renminbi-denominated cash between onshore and offshore accounts, crucially boosting companies’ liquidity in the currency.

Corporate treasurers have long been frustrated by the restrictions and complexities of moving RMB-denominated cash in and out of China, but recent moves by the Chinese authorities to address this has enabled transaction banks to launch automated RMB cash sweeping services for the first time.

Such liquidity-management tools are important for multinational companies operating in China, and, crucially, could help hasten the end of trapped cash – a substantial problem in the country for corporate treasurers.

In July, the People’s Bank of China introduced regulation or circular No 168, allowing cross-border RMB lending across China.

In addition, cross-border RMB lending is no longer limited to intercompany lending and unrelated corporate organizations can now enter into RMB cross-border lending agreements in the form of a cross-border entrustment loan.

Ultimately, this means corporates can now bring trapped cash out of China to meet overseas working capital needs, and RMB can be fully integrated into companies’ regional and global cash pools.

Citi was the first international bank to launch an automated two-way service for RMB cross-border sweeping in September. HSBC followed in January.

Deutsche Bank says this week it has introduced its own automated RMB cash-sweeping services for cross-border lending to its corporate clients in China.

However, all three services are restricted to companies operating in the Shanghai free-trade zone (SFTZ), a test-bed for a number of economic reforms.

Deutsche received preliminary approval to set up a sub-branch in the SFTZ in November, and say it is working on developing and launching services such as two-way RMB cross-border cash pooling, as well as centralized payments and collections, and transaction processing for RMB direct investments.

Automated two-way cross-border sweeping enables multinational companies to deploy funds on a pre-set automated basis between their onshore and offshore organizations by linking their mainland and overseas cash pools.

Provided activity remains within the prescribed value limits, movement of funds can happen as often as daily, which enhances the efficiency of any global or regional liquidity structures a multinational company might operate.

Roche China, the Chinese subsidiary of the Swiss drug maker, and Dover Corporation – a US manufacturer of specialist industrial equipment – are the first companies to integrate the automated sweeping infrastructure.

Roche China is working in partnership with Citi, and Dover with HSBC.

Michael Zhang, president of Dover Asia, notes in a statement that automated two-way cross-border sweeping not only enhances the efficiency of the company’s regional cash management but also improve its Asia operations.

“It will better support the business expansion of our subsidiaries while also speeding up the process of RMB internationalization within our group of companies,” Zhang states.