In China, even the most basic act of treasury management–opening a bank account–is more complicated than it is in the United States. Thus, a US company considering a Chinese venture is wise to seek a bank that can be an effective coach and treasury advisor.

Complex Banking Regulations
Attracted by its 1.3 billion people and their potential both as a market for goods and services and as an inexpensive labor resource, US companies are increasingly pursuing commercial interests in China. But the first lesson that treasury managers need to learn is that Chinese banking is heavily regulated. For example:

• US companies in China can open a single "basic" account, and this is the only account that allows for cash withdrawals. You can open multiple "general" operating accounts, but cash withdrawals from these accounts are forbidden.
• Non-residents are not allowed to open accounts in the Chinese currency, known as the "Yuan" or "Renminbi."
• If you are located in one province and have a bank account there, and you want to move to another province and open up a new account, you need to seek approval from Chinese regulators.
• There are major restrictions on the activities of foreign banks in China. For instance, through the end of 2005 foreign banks will only be allowed to operate in 20 Chinese cities.

Because of the many clearing and regulatory challenges, a key success factor for US firms in China is partnering with the right bank. Most companies will need to develop local banking relationships wherever they operate for basic services like cash withdrawals. However, it's also advisable to partner with a bank with multinational capabilities. You want a relationship with a bank that can provide the appropriate technology, understands local regulations and is willing to help your company overcome treasury management hurdles in China.

Account Visibility
The main challenge for a treasurer with responsibilities for China, whether you're located in New York or in a regional office in Hong Kong, Singapore or Sydney, is having a view of all the company's accounts across China. That generally requires working with a global bank that has relationships with China's major banks and the technology to offer a true, single "multibanking platform."

A multibanking platform provides a channel that enables a US company to send funds transfer instructions relating to all Chinese bank accounts through one global financial institution and retrieve balance information on all accounts across China through that same bank. A multinational bank like Deutsche Bank makes this possible by establishing and maintaining strategic partnership arrangements with the major Chinese banks, in order to leverage their extensive branch networks.

Financing Solution
Another challenge is managing Chinese banking regulations to finance your operations in China. Traditionally, the Chinese have not allowed intercompany loans, either between corporate units within China or between units outside of China and those within the country. Today this is still true. However, as a result of efforts by banks like Deutsche Bank, Chinese regulators approved the use of entrustment loans. With an entrustment loan, the Bank acts as a trustee to facilitate intercompany loans.

For companies operating in China, an entrustment loan through a trustee bank may be an appropriate option whenever there is a unit within a corporate group in a deficit position and another unit within that group with surplus funds. Such a loan can allow both the borrowing and lending units to receive optimal rates on the transaction.

Regulators have recently allowed banks to make entrustment loans on behalf of their customers not only in Yuan, but also across Chinese borders in US dollars. However, companies still need to take a cautious approach regarding such transactions, since regulators review and approve them on a case-by-case basis.

Entrustment loans can be used to optimize liquidity management within a related group of companies, or the borrower and lender can be companies from unrelated groups.

Cash Sweep Capability
Regulations allowing entrustment loans have also laid the foundation for cash sweeps across entities in China.

Previously, cash sweeps involving different legal entities within the same corporation were not allowed, because pooling funds for investment purposes was viewed as a form of intercompany lending. However, now, with regulators allowing entrustment loans, different legal entities can use a trustee bank to pool funds in an effort to maximize investment performance.

Easier, But Not Easy
Although they seem to be easing year by year, the restrictions on banking in China can still be a bit daunting. That's why US companies conducting business across China would do well to partner with a strong and experienced bank, one that has the technology and local presence to help them react to ongoing developments and manage new challenges.

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