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Reducing cash management complexity is crucial to success for Canadian companies doing business in China
Knowing how to navigate through China's complex financial system can provide a competitive advantage for Canadian companies entering the country for the first time or expanding into new markets.
In this Q&A, Michael Klopchic: Country Head, Global Liquidity and Cash Management, HSBC BankCanada, talks about the logistical and financial considerations, and the role of renminbi (RMB) in cash management, that you may need to take into account when you do business in China.
How can HSBC leverage its presence in China to support Canadian companies looking to enter or expand in this market?
It's always important to note that trade between Canada and China is growing at a very fast pace. Research shows that 74 per cent1 of Canadian companies expect to increase their trade with China in the coming year.
The most significant help we can provide any company with their plans for China is opening doors. We will use our connections, our network, and our history of being there to help Canadians open doors to companies that they want to either buy from or sell to plus navigate the complex Chinese financial system.
What are some key areas of cash management that Canadian companies operating in the China-Canada corridor need to be aware of?
What many Canadian companies don't realize is that the Chinese financial system is very complex. China has some specific instruments that they use, that aren't used anywhere else in the world and the financial system is not uniform across the entire country. They're working to streamline it and make it simpler however, banking, payments and the processes around it can vary from region to region.
When you look at the Chinese market, are there unique cash management considerations that don't necessarily apply in any other market?
The unique considerations are definitely the local variances around the regulatory environment. If we use Canada as an example, it's as if we would say the financial system in Toronto is different to the financial system in Vancouver. Canadian companies are used to dealing with the Canadian financial system, which is relatively seamless coast-to-coast, whereas China is not as seamless and it can take days to complete transactions which can result in working capital challenges.
What kinds of strategic cash management considerations should companies take into account when looking at doing business in China, and how can HSBC help?
We can help companies by streamlining their banking operations. Because of the regional differences I mentioned, many companies that operate in China use several different banks. HSBC's presence throughout the country means our customers can streamline their banking and have a more efficient treasury and payments platform.
There are companies who deal with as many as 20 banks. In these cases, a cash sweep arrangement can consolidate all of a company's funds in China into one bank — this streamlining allows them to improve their liquidity and control over their cash.
HSBC has established renminbi (RMB) trade capabilities in more than 50 markets globally, including Canada. What's the role of RMB in cash management?
There's a lot of opinions on the role of RMB, but what can't be challenged is that China is the world's second-largest economic power and the world's number one trading nation, and it's growing. The RMB is what they use to settle trade. You can use U.S. dollars, and U.S. dollars have historically been the currency of satellite trade. However, you're exposing yourself to currency risk and potentially increased cost, because the supplier or the buyer in China could be taking a bit of a hedge position. The customers that I've worked with, that use RMB to trade, would rather manage the currency risk themselves than have their supplier manage it for them.
How can Canadian companies doing business in China manage their cash flow?
HSBCnet, our online banking platform for businesses is a great solution. The advantage of HSBCnet is that you can be based in Canada or any other country and you can have an entire global view of your business from one platform. You can manage your payments, you can manage your receivables, your liquidity, all through one online system, all through one view and one platform.
Can you share three key takeaways that would be beneficial to a Canadian company doing business in China?
It's always important to remember that the Chinese financial system is very complex and not uniform across the entire country.
Second, when you are doing business in China, RMB is what they use to settle trade. RMB is a growing global currency and it has advantages for Canadian companies, such as reducing costs and engaging Chinese partners to win new business. Canadian businesses are becoming more aware of the currency: recent research shows a 133 per cent RMB Internationalisation Survey (2016) increase in Canadian firms using RMB.
Third, find a trusted international bank with a long history navigating China and Hong Kong, such as HSBC.
For more information, talk to one of our Relationship Managers today.
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Visit http://www.business.hsbc.com/belt-and-road# to get more information about the Belt and Road Initiative.
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