How MNCs can make the most of business opportunities in the Greater Bay Area
As a key driver of strategic planning in China’s development blueprint, Greater Bay Area represents one country (China), two systems (socialism and capitalism), three currencies (Renminbi, Hong Kong Dollar and Macau Pataca) and four cities (Hong Kong, Guangzhou, Shenzhen and Macao). This ecosphere has attracted multinational corporations, drawing $150 billion in foreign direct investments. The Greater Bay Area is now a vibrant market with 86 million residents and a GDP of CNY 13 trillion ($1.8 trillion).
Its rapid growth represents an opportunity for multinational conglomerates (MNCs) to reformulate their treasury management strategies in the Greater Bay Area, thus building a foundation to support their business plans for the region.
As the best Chinese bank for the Greater Bay Area, Bank of China (Hong Kong) (BOCHK) is adhering to its mission of “bridging China and the world for common good.” BOCHK shares three key trends that make the Greater Bay Area the best location for multinationals who wish to deepen their engagement with China and rest of the Asia Pacific market.
Cash pooling schemes are improving cross-border cash liquidity
A number of different cash pooling schemes have been launched by the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange of China (SAFE), as a part of China’s trade and investment facilitation. These schemes expedite treasury management and cross-border fund usage for MNCs.
Provisions of the schemes allow qualified corporates to build operation channels for easy and fast fund allocation in the Greater Bay Area and Hong Kong by creating cross-border cash pools. More corporates are choosing this route to get their foot in the door and enhance the liquidity of cross-border funds to assist the expansion of businesses. This also reduces external borrowing and costs associated with overdraft funding.
Currently, there are several cross-border cash pooling schemes to choose from with different controls and application requirements. For instance, MNCs can adopt the Free Trade Zone (FTZ) cross-border cash pooling scheme, which gives them flexibility and allows companies registered outside mainland China to possess the centre pool. They can also realise free convertibility of currency within the cash pool through free trade (FT) accounts. Mega-corporations can also consider adopting multi-currency cash pooling schemes and enjoy more flexibility in areas like fund sweeping, multi-currency management, and FX settlement.
Establishing a corporate treasury centre (CTC) in Hong Kong to centralise treasury management in APAC
Enterprises with business interests in multiple APAC countries invariably come up against the challenges posed by complex foreign exchange control policies, and high FX related risks with non-mainstream currencies.
A considerable number of these affected companies are moving from decentralised treasury management to a centralised structure, and many of them choose to establish a CTC in Hong Kong. The decision to pick Hong Kong is no coincidence: located at the heart of Asia, it is tightly integrated with mainland China and connected to the rest of the world. As one of the leading international financial hubs, Hong Kong is well-known for a sound legal system, simple and competitive taxation, free flow of funds, a wide range of financial products, and sufficient banking expertise.
A special tax regime has been put in place for CTCs in Hong Kong, including interest deductions under profits tax and a 50% tax relief for qualified activities. Centralising treasury activities in Hong Kong allows treasurers to manage investment, FX exchange, and transfer the group’s cash to support certain businesses without extra foreign exchange control regulations. A company can thus embed greater control, strengthen its treasury governance, achieve operating efficiencies, and enjoy tax optimisation, all at the same time.
Enhancing treasury management digitalisation with fintech
Accelerating digital transformation is among the most important objectives for treasurers. As part of the drive to build an international technological innovation centre in the Greater Bay Area, groups such as Bank of China continue to invest in fintech development and to strengthen cross-border cooperation. Treasury management tools have been upgraded, empowering corporates to further the digitalisation agenda and improve financial management.
Depending on their needs and stage of evolution, corporates can consider financial tools such as application programming interface (API), enterprise resource planning (ERP) cloud, robotic process automation (RPA), and global payments innovation (GPI) to increase security and convenience of cross-border treasury business management.
For instance, instead of establishing a direct connection between bank and enterprise through traditional host-to-host connectivity, companies can now adopt API and benefit from its lightweight programming language, easy and fast implementation, and economical costs. Moreover, an API has advanced technical structure and security standards, allowing banks to provide faster, highly secure, and real-time services. An increasing number of institutional customers are now considering the adoption of extra API connectivity or using it to replace their old channels to accelerate digital transformation of treasury management.
BOCHK strives to provide customers with comprehensive, professional, and high-quality services. As a robust and trustworthy partner to multiple MNCs, BOCHK has proven its professionalism and understanding of customer concerns by leveraging the bank group’s global network. As an expert with extensive experience in providing cross-border services, BOCHK has successfully designed and built hundreds of treasury management systems for MNCs, including numerous Fortune 500 companies. With a comprehensive cash management product matrix, BOCHK can fully meet the needs of enterprises in areas such as global account management, digital channel and bank-corporate connectivity, revenue and expenditure control, and fund concentration. The bank has helped enterprises enhance capital distribution, cash circulation, and risk prevention.
The treasury management service has earned BOCHK recognition from customers, the industry, as well as treasury media including Corporate Treasurer, Treasury Today, TMI and Treasury China in 2022, in areas such as treasury management, cash pool solutions, fund collection, digital and ESG transformation.
BOCHK will continue to promote innovation in financial technology and treasury management, and provide high-quality, professional, and fast-response cross-border and local cash management services for various enterprises participating in the growth of China and the rest of Asia.
BOCHK has been awarded as Best Chinese Bank for the Greater Bay Area 2022 by Asiamoney