See how HSBC pilots the first-ever foreign currency netting solution in China

Kee Joo Wong, HSBC’s Head of Payments and Cash Management in China, reveals some exclusive information.

In a statment, HSBC recently announced that 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.

Asian Banking and Finance interviewed Kee Joo Wong, HSBC’s Head of Payments and Cash Management in China, to learn more about this netting solution.

ABF: What spurred the launch of this new solution?
As China is now gradually liberalising its financial market, it is only natural to witness the evolution of these new solutions in light of the progress being made. In the past few years, we have seen progressive liberalisation of the capital and current account controls.

For example, for foreign currency goods trade payments last year, controls were liberalised for companies of good standing to allow them less onerous documentation submission for cross-border payment flows. On the capital account perspective, more flexibility has been provided in recent years for the inflow of investments into China via RMB, and also, for the flexibility on the location of where the capital account for a corporate could be open.

As China seeks to develop cities such as Shanghai and Beijing into global financial centres where regional treasury centres would want to set up, these new solutions are very much a natural progression and an important step in the direction.

ABF: What's new about it for HSBC and for China?
Cross-border sweeping and netting are relatively straight forward cash management solutions that might be easily found and implemented in countries where regulatory controls are more flexible. However, given China's FX control, these solutions were not applicable in the Chinese market in the past.

These new pilot programs that are being developed and pushed forward are ground-breaking developments in China. Treasurers in Asia, and across the globe, need to pay careful attention to these developments as these solutions will provide the benefits of being able to consolidate their foreign currency transactions, reduce foreign currency exposure, lower processing costs and improve operational efficiency.

ABF: What do you hope to achieve with this initiative?
Clearly HSBC is a market leader in the cash management arena in China, and across the globe. Our market expertise and international connectivity allows us to connect our customers to new opportunities ensuring that we bring to our clients market leading ideas and new developments as they evolve.

We clearly need to ensure that we are able to provide the best solutions for our clients and support the growth and development of the cash management market in China, regulations permitting. We are tremendously excited about these new developments and see clear advantages for our clients and to China as a whole.