Competition between Asian treasury centres on the rise
Competition among Asian jurisdictions is on the rise as demand for regional treasury centres (RTCs) grows. Meanwhile, change is afoot in the treasury market in Hong Kong and Shanghai.
Shifting trade flows and the expansion of multinational corporates from emerging markets (EMs) with ever-sophisticated demands – from cash-pooling, vanilla cash management to FX hedging – have boosted the allure of establishing RTCs in Asia, triggering competition between jurisdictions.
The long-established financial and legal infrastructures of Hong Kong and Singapore and the immaturity of neighbouring markets has historically left corporates, with cross-border operations in strategic markets, with little choice but to set-up treasury centres in these financial hubs.
Hong Kong has long been the gateway into China, but now it is becoming China's gateway to the world.
John Laurens, DBS Bank
However, the strengthening of local banking systems, economic expansion and low cost of human resources have all propelled Malaysia and the Philippines to take steps to make their operating environments more appealing for transaction bankers.
Meanwhile, Shanghai is beginning to capture the flows of expanding corporates within its own borders and beyond as the country continues to liberalize.
As the Chinese automotive industry expands to become the biggest in the region, corporates are seeing the advantage of moving their treasury operations to be close to their headquarters in the city.
To facilitate this move, the Chinese government introduced changes to make it easier for centres to be established within the Pudong financial district, including freeing up cash-pooling facilities for intra-company loans.
The region’s EMs are also vying to attract attention by adapting their offerings.
Martijn Stoker, head of liquidity management for Asia-Pacific, JPMorgan, says: “Malaysia is becoming more significant. The government has strong ambitions and is working hard to become more competitive. Development here will start with the large, local companies setting up centres.”
The country has introduced a number of tax incentives, including a 70% income-tax exemption for five years for a locally incorporated company in Malaysia providing centralized treasury services to its related parties, as well as stamp duty exemptions implemented on loans and service agreements on operations completed by the treasury centres.Attracting treasury business goes beyond corporate tax incentives, however, and includes the need to entice highly skilled workers.
Mark Troutman, regional head of sales for payments and cash management, HSBC, says: “Some countries are working with their tax and immigration departments to make themselves a more attractive option to draw in foreign investors and their talent.
“As an example, Singapore has created the ‘not ordinarily resident’ scheme and made changes to personal tax rules.”
Treasurers are still seeing the advantage of creating their centres in established markets, and these markets are putting up a fight to retain this business.
JPMorgan assisted Thailand’s national oil and gas company PTT to set up their RTC in Singapore in 2014. The company centralized activities to improve visibility and encourage business growth, with the goal of encouraging overseas investment.
Some countries are working with their tax and immigration departments to make themselves a more attractive option to draw in foreign investors and their talent.
Mark Troutman, HSBC
Thailand’s offering might be maturing, but the company did not feel it presented the best business case to establish their RTC within their own borders.
JPMorgan’s Stoker says: “PTT chose Singapore because of the attractive regulatory and business environment. The city has a high level of banking, finance and business expertise, a long-established legal system, and an open and deep foreign-exchange market.”
Hong Kong’s role as the RTC of choice is evolving amid economic shifts on the mainland.
John Laurens, managing director and head of global transaction services, DBS Bank, says: “Hong Kong has long been the gateway into China, but now it is becoming China's gateway to the world.
“China’s multinationals set up operations in Hong Kong to take first steps internationally, whilst still having their feet on home soil.”
Hong Kong’s financial secretary John Tsang outlined last year plans to entice more local and mainland Chinese companies to set up their centres in Hong Kong, with a joint task force appointed to boost the push. Analysts suggest Hong Kong could alter its treasury-related tax regime to compete with Singapore.
In any case, although setting up an RTC might yield benefits – such as consolidating international treasury needs and reducing costs – the data-protection challenge of storing confidential details, such as social security information and bank account details, will moderate the pace of regionalization.
“There are concerns regarding the safety of data being held outside of countries,” says Richard Chapman, head of strategy, IntelliMatch, SunGard. “Countries such as Malaysia, Indonesia and the Philippines require any third-party managed services to hold data in country.
“For banks that have foreign subsidiaries in other countries, they must either aggregate or mask data before sending to head office. In some cases, such as Indonesia, any systems and data must be held in country only [causing a mass onshoring within the country].”