The mainland's domestic banks have laid the foundations for a sophisticated corporate treasury management system by investing billions of yuan a year in the necessary computer hardware and systems that run them, as well as in personnel. But a dearth of products to trade continues to frustrate companies and bankers.
"The investment has been huge and the networks are in place," said PricewaterhouseCoopers partner Simon Gleave in Beijing.
Industrial and Commercial Bank and China Construction Bank are the front runners among the leading banks in corporate cash management.
ICBC leverages its extensive branch network with by far the highest number of any bank in China. The bank's computer-savvy president, Jiang Jianqing, has also pushed the development of information technology systems. CCB, with fewer outlets, has developed the most integrated system which allows faster and more efficient transactions, observers said.
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That is a positive development for corporate finance officers who lack options when trying to maximize returns on short-term cashflow.
Bank deposits yield next to nothing, bond markets are dominated by institutional investors and stock markets wallow near multi-year lows.
Into the breach has stepped the corporate finance arms of the domestic banks, led by ICBC and CCB, offering basic-yield enhancing products through foreign currency options and simple structured notes.
Demand for such products has been huge with transaction volume doubling each year, analysts said.
But nothing more than these basic products is likely to be allowed by the mainland's cautious financial regulators. They fear the major losses that can add up very quickly if investments in products that contain the necessary derivatives go wrong.
That attitude is not likely to change soon in the wake of the scandal at China Aviation Oil. The Singapore-listed, mainland-owned company racked up losses of US$530 million (HK$4.13 billion) by making the wrong bets on oil prices.
A new derivative licensing regime implemented last year, so Beijing could keep better tabs on who was selling what, has also caused banks to move more cautiously with new products.
Analysts said there is good reason for Beijing's insistence on going slow. While domestic companies witness explosive growth, interest and exchange rates continue, as always, to be fixed by the government. That means executives have not had to face the financial stresses that force corporations into disciplined cash management practices.
"The sums of money are getting bigger and bigger but the control environment and risk management is very, very limited," Gleave said.
The market itself is a brake on development because there is not yet a need for the most advanced cash management techniques. "Chinese corporate balance sheets are fairly simple, with basically just debt and assets," said Marc Poirier of French investment bank Societe Generale. "It could take three to five years before the market becomes deeper."
That will see yuan-based interest rate swaps along with futures and currency hedging giving bank customers more ability to mitigate risks at home and abroad. Equity-based products will also come into force.
A market with this greater depth will provide companies with a more stable operating environment and more opportunities to manage the volatility that comes with rapid economic growth.
