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Hong Kong – A regional treasury hub with global impact

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Establishing a corporate treasury centre in Hong Kong delivers financial advantages to a multinational that can be felt across the entire organisation.

As the world’s most dynamic economic region, Asia presents an exciting range of opportunities for businesses engaged in international trade. Its strong manufacturing capabilities not only makes Asia the key global sourcing destination for manufactured goods, its increasingly affluent middle class also makes it an important market for companies in Europe and the US.

Asia can however be a challenging environment from a financial perspective, with multiple currencies across the region, complex supply chains that can cover several countries, and regulations that differ from market to market. By keeping up to date with the main regional trends, chief financial officers and corporate treasurers can make a real contribution to the overall success of a company’s endeavours in Asia.

One way that they can do this is by establishing a corporate treasury centre (CTC). This is an operation that functions as an in-house bank for a multinational company, overseeing the regional management of the group's finances.

By setting up a CTC, a company can enjoy multiple benefits – including improved cash management, cost savings and tax effectiveness, as well as visibility and access to cash over a number of banks

Dixon Wong | Head of Financial Services and Global Head of Family Office at InvestHK

He also explained why Hong Kong is well-placed in Asia to house a CTC, highlighting the city’s robust legal and tax systems, alongside its proximity to mainland China.

From “just in time” to “just in case”

A CTC can play an important role in managing the risks associated with long supply chains that stretch all the way from manufacturing hubs in Asia to end markets in Europe and the US.

Even before the pandemic, supply chains were an area of focus, as geopolitical factors prompted companies to relocate operations closer to home. COVID-19 then delivered a sharp shock to supply chains, creating logistical challenges, supply shortages, and counterparty risk.

Over the last 24 months, the importance of managing supply chain risks has come to the fore

Aditya Gahlaut | Managing Director and Head of Global Trade and Receivables Finance, HSBC Hong Kong and Macau

“The ‘just in time’ mantra that we all used to live by has been replaced by ‘just in case’ as the fundamental principle guiding supply chains”.

From a banking perspective, this means increased demand to finance additional inventory levels, not only for large multinationals, but also to provide the financing that supports their supply chains.

A HSBC Asia Supply Chain Research found that 30% of corporates have already started using structured trade finance in 2021, including receivables finance, supply chain finance and funding solutions1. Furthermore, an additional 41% of respondents are considering to establish distributor financing facilities to support their supply chains.

The global offshore RMB hub

The depth of liquidity in a market and in a banking partner remains a top consideration for treasuries when choosing where to hold and utilise the advantages of offshore renminbi

Colin Fung | Director, Global Liquidity and Cash Management, HSBC

The ready availability of the renminbi in Hong Kong is especially helpful for treasuries, with automated cross-border RMB pooling structures and those with a multi-currency notional cash pool. For example, a company can partially offset a euro debit balance against the equivalent offshore renminbi deposit, without foreign exchange conversion. And this is scalable to include other permitted Asian currencies into the pool.

“You get all the flexibility that comes with retaining Asian currencies but with the advantage of being able to globally use the pooled cash by drawing from a single preferred functional currency account,” said Mr. Fung.

Case study – a corporate treasury centre in action

We can see the benefits of a Hong Kong-based CTC via a case study. Our experience serving a multinational company in the TMT sector shows how regional treasury coverage and direct foreign exchange with multiple markets across Asia delivers both improved coordination and greater transparency.

The company has a multi-currency Asia cash pool, concentrating funds from China, Japan and Singapore. This means that it can draw on any money from the Hong Kong cash pool to provide funding to its European pool, as and when required. Furthermore, the regional treasury is able to closely collaborate with its regional operations, as well as its global headquarters, to ensure that all parties are up to date with the relevant rules and regulations – especially those related to hedging.

A regional treasury centre in Asia helps optimise treasury functions for the entire company

Jyotsana Mittal | Director, Markets and Securities Services, HSBC

One advantage she pointed to is how a CTC is able to buy and sell Asian currencies during local market hours, when there is the most liquidity, which helps improve the company’s overall cost and liquidity.

Realising an optimised treasury

A CTC is a powerful tool to optimise a multinational’s treasury activities in Asia. If it is located in Hong Kong, it is well placed to liaise with all the regional offices that contribute to the company’s supply chain, while easily incorporating the renminbi into its operations.

 

To find out more about how your organisation can realise the benefits of a corporate treasury centre please contact your relationship manager.

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