Many Chinese businesses are suffering from cash flow problems from the impact of the global economic recession. As such, it has become more and more crucial for companies to improve cash management and use funds efficiently, according to a new report, "Cash Management in China," from Celent, a Boston-based financial research and consulting firm.
China's cash management business has gradually become an important business for commercial banks since it was introduced by Citibank in 1999, says Celent, adding that in the last five years, the number of cash management clients has doubled yearly, and it is expected to grow by more than 30% over the next three years.
By the end of 2008, the cash management business had penetrated into 72% of bank deposits, but only 26% of corporate clients use cash management products, reflecting a much higher penetration rate among large companies than among SMEs. In terms of group enterprises, 84 have established their own finance companies in China.
According to the Celent report, most large enterprise groups in primary industries such as energy, electricity, and petrochemical, as well as those in the various major sectors, have their own finance companies. SMEs have cash management needs as well, and even though the market penetration rate is currently low, banks will compete fiercely for cash management business in the future.
In China, SMEs account for 99.6% of all enterprises, with their end products and services being valued at more than 60% of China's GDP, their import-export volume at 70% of the total, and their annual growth rate reaching 46%, exceeding the 23% average national growth rate. The overseas accounts receivable of SMEs have exceeded US$70 billion, and are growing by US$10 billion every year. In China, the total accounts receivable reached about 30% of the total assets in enterprises, which is far beyond the 20% level of developed countries.
In terms of products, cash management services include: liquidity management, valuation management, credit line management, overdraft management, AR/AP, investment and finance management, risk management, and supply chain finance, as well as certain specific services for special industries such as e-commerce and chain stores.
Although their cash management services are slightly inferior to those provided by foreign banks, Chinese banks are still ahead in many areas, such as their extensive network and clientele. The cash management business covers a wide scope and has many related regulations, including the Measures for the Administration of Bank Accounts, the Regulations on the Administration of Domestic Foreign Exchange, the Measures for Bank Payment and Settlement, the Anti-Money Laundering Law , etc., which regulate the forms of payment tools, types and extent of loans, setup requirements and business scope of finance companies.
"Generally, cash management services in China are moving in the direction of integration and globalized services, with the support of developed IT systems," notes the consulting firm.
The Celent report also finds that Chinese banks are stepping up their building of system platforms, developing advanced cash management systems, increasing development for cash management solutions that can satisfy different customer needs, improving corporate Internet banking, creating their own cash management service brands and specialized teams, and strengthening their investment and financing consulting and services. Most foreign banks, however, have successfully transitioned from selling individual bank products to providing comprehensive cash management solutions.