HSBC China is the first foreign bank to obtain approval from the State Administration of Foreign Exchange (SAFE) to implement a foreign currency netting solution for the trade of goods in China; this has been obtained for a multinational Korean customer.
The pilot foreign currency, cross border netting solution enables multinational companies to offset their foreign currency payables and receivables between their Chinese subsidiaries and their netting centres located overseas.
Under this scheme, companies will benefit from a significantly reduced number of intercompany transactions, lower processing costs and lower currency risk exposure. This transaction is a major development that quickly follows the recently announced HSBC foreign currency cross border sweeping pilot.1
“This new development enables multinational companies in China to maximise their operating efficiency and adopt liquidity management structures that are in line with international practices," says John Laurens, Head of HSBC’s Global Payments and Cash Management, Asia Pacific.
"Given the fast-moving nature of the Chinese market, and the continued liberalisation of regulations, it is essential that international treasurers remain attuned and responsive to change in China in order to capture the opportunities arising from these recently launched pilot programs.”
This new netting solution is an integral part of SAFE’s recently launched Foreign Currency Centralised Management pilot scheme for multinational companies.
The pilot scheme, launched to a small group of select Chinese and foreign invested multinational companies and banks in Shanghai and Beijing, aims to optimise the management of foreign currency in China.
Under this pilot scheme, a number of new solutions such as centralised collection and payment, netting and automated cross-border cash concentration and intercompany lending transactions will be permitted.
“These developments represent a critical opportunity for companies to unlock additional liquidity and continue to globalise their liquidity position," says Kee Joo Wong, HSBC’s Head of Payments and Cash Management in China. "We have worked very closely with our client in China to design a netting solution which will enable them to consolidate their foreign currency transactions, reduce foreign currency exposure, lower processing costs and improve operational efficiency."
Netting is a common cash management technique that reduces the number of inter-company payables and receivables transactions and, in turn, the financial costs associated to these settlements.