With express permission from the China authorities, the firm can now reduce much manual work in processing foreign exchange transactions
The Dutch multinational conglomerate Philips operates nine entities in mainland China, making more than 4,000 intra-group cross-border transactions across seven currencies each year.
However, as these entities could not be integrated into the group’s global netting structure, the firm’s treasury teams onshore and offshore must allocate substantial time and effort to manually process hundreds of cross-border payments each month.
On 17 Jan 2025, the firm announced it had implement a treasury solution to reduce the hundreds of intra-group multi-currency transactions into a single cross-border transaction in Renminbi currency (RMB). The foreign exchange netting solution was implemented with consent from the People’s Bank of China (PBOC) after multiple rounds of discussion to roll out the cross-currency netting solution in mainland China.
The netting solution leverages Philips’s existing cross-border cash pool set up under the PBOC’s free trade enterprise structure. This would streamline processes, lower costs, and unlock working capital for the firm.
Touted to be a first in China, the netting solution converts intra-group cross-border foreign currency payments and receipts related in mainland China into RMB using Philips’ in-house bank exchange rate on a monthly basis. This serves as the basis for calculating the RMB netting settlement. All the cross border payments, netted into a single transaction, with RMB as the settlement currency, are then settled between Philips’ domestic netting center and the treasury solution’s overseas netting center. At the same time, each Philips company or division settles a single netting transaction in RMB with the domestic netting settlement center.
According to its Head of Treasury (Asia Pacific), HSBC, Kathy Yu: “This groundbreaking netting solution removes many treasury-related pain points, unlocking our onshore working capital, reducing both the volume and the cost of our cross-border transactions, and improving our FX risk management.”
Commented Yvonne Yiu, Co-Head, Global Payments Solutions (Asia Pacific), HSBC, the bank providing the new treasury solution: “Multinationals’ need for centralized and optimized treasury processes increases as their businesses in mainland China grow… (and) can greatly reduce the manual processing of their cross-currency transactions, materially lower the cost of each transaction, and vastly improve the visibility and control of their cash flow…” through such cross-currency netting systems.
