China focus: Asia and US to remain key China partners, says J.P. Morgan

What do Chinese companies look for from the international banks in China when they want to expand cross-border?

Growth is the goal. A bank that can support growth objectives is critical. Chinese companies looking to expand regionally and globally are focused on several things. They’re looking for a partner who can deliver sound, strategic advice to help them evolve from a domestic enterprise to a regional or global player. Ideally, a bank should be a partner who can then help to execute the growth plan on an international level. A critically important part of this process is educating our current and potential new clients on cash and liquidity management trends, and how they can reduce risk by properly structuring their financial supply chain. Chinese companies and financial institutions alike have a voracious appetite for information on how to best prepare themselves by implementing the right infrastructure, the right services and the right people.

There are some key themes that we’ve seen emerging within China, and it is likely that these themes will dominate over the next five years and beyond. First and foremost is a greater focus on achieving better visibility and control over the movement of their cash. There is a desire to better consolidate their operations with a view to freeing up locked capital and maximising returns.

Are they interested in establishing shared service centres?

Over the last year, we have seen significant interest from Chinese corporations in implementing a regional treasury centre (RTC) model. This interest, which has continued into 2011, was a key factor in our decision to launch an educational road show series in China last year for both our existing and new clients. As Chinese corporations turn their focus to the world stage, there is an understanding that they need to be ahead of the curve in structuring their operations to maximise their global growth potential. RTCs, along with shared service centres in general, provide a sophisticated and integrated mechanism to facilitate the smoother running of the company’s day-to-day operations.

Do local banking partners of Chinese companies understand the importance of modern cash management capabilities?

Chinese banks are well aware of the importance of efficient cash management solutions, which is where we can play a key role as a strategic partner. They understand that as their domestic clients move across borders, those companies are focused on efficiency, cost control and risk mitigation, to ensure they focus their efforts on achieving their growth objectives.

Are the fundamentals for multinational corporations (MNCs) venturing into China the same as for Chinese companies going abroad?

The two approaches are very different. On one hand, a large corporate expanding overseas is looking for a better cash and liquidity management solution, along with a global partner that can deliver strategic advice and business expertise relevant to that corporate’s target market, be it the Asia-Pacific markets, the US or any of the member countries of the European Union, Latin America, Africa and more.

A large MNC moving into China is seeking very different things. Typically, they’re generally looking to partner with one of their existing global banks to ensure continuity of service – it’s about platform integration at a global level. That bank also needs to have a strong on-ground presence in China, strong local people advising on regulatory and business issues, and a strong network infrastructure to make sure that MNC can get its business done at the end of the day.

In which direction are you seeing Chinese companies moving and what factors are driving this trend?

China’s quest for stable supplies of natural resources to support its burgeoning growth make investments in resource rich countries attractive; however, Asia and the US continue to be natural markets for Chinese exports, given strong consumer demand for Chinese goods. Central to this conversation of course will be the continued internationalisation of the renminbi and the ease with which Chinese corporations can use their surplus renminbi to make investments outside China in their home currency, as well as their ability to repatriate earnings. Treasurers within China are preparing for the day when the renminbi becomes a widely accepted currency to be used for trade and investment, and as such, they’re making sure their operations will be able to cater to the currency down the road.

How is J.P. Morgan TSS developing in China? Are you facing stiff competition from the local banks?

China is an exciting place to be. We are continuing to enhance the range of solutions that we offer to our clients and building on our reputation as a strategic advisor, and we’re hiring more people, investing in our technology and operations infrastructure and expanding our on-ground presence, all as a result of our continued success in China.

From our perspective, it’s not about competing with Chinese financial institutions, because we’re targeting different clients. We’re focused primarily on our global clients who are looking to do more business with China, and we’re also supporting numerous Chinese financial institutions as they focus increasingly on the regional and global stage.