Unpredictable and opaque 

One issue is how often significant changes can be introduced with little advance notice or consultation. The recent cancellation of banknotes in India is one example; another is the changes to how bills of lading are processed there as well. The latter is a good example of how regulators can try to improve a process, but because of a lack of consultation the first iteration of the change actually causes additional problems. 

Another issue is how often key regulations are changed without any formal process for widespread notification. For example, in December 2016, treasurers began to hear of new controls placed on the banks limiting, among other things, the conversation of Chinese yuan into foreign currency. This had an impact on only recently-introduced Chinese cross-border cash-pool structures, rendering them only useful for bringing capital into China but not taking it out. One treasurer who managed to obtain a copy of the regulations, which had been communicated only to some banks, posted them online only to see them taken down.

A month later, at the end of January 2017, further moves to limit renminbi outflows were introduced, again "informally": Shanghai banks have been briefed that they must “import” Rmb100 for every Rmb100 they allow a client to remit overseas, compared with the previous Rmb160. In Beijing, banks must import Rmb100 for every Rmb80 they remit overseas on behalf of clients, ensuring a net inflow into the capital.

Once again though, The People’s Bank of China (the central bank) has refused to comment on the imposition of these rules, which have not been communicated directly or publicly in a way that would be easy for corporate treasurers to find out. This obviously makes forecasting difficult and it also means that you rely heavily on local banking partners to keep you up to date. It is critical to make sure you are working with key bankers who are "in the know".

Meanwhile, occasionally there are regulations that radically alter the operating environment and which can seem to make compliance impossible. In Indonesia, in principle, the enactment of Bank Indonesia (BI) Regulation 16 requires every legal entity of non-banks with offshore loans (except for trade credit) to meet certain hedging ratios, liquidity ratios, and to have credit ratings. How many companies will be able to comply? 

Centralisation still a problem 

This is the situation treasurers face in Asia and it is unlikely to change any time soon. And it is a challenge both in terms of trying to accomplish what are simple tasks in Europe, for example settling cross-border intercompany invoices or paying dividends, and also in terms of bigger-picture tasks such as integrating Asia into our global treasury. We have three locations only in Asia where we have been able to do that: Australia, Japan and Singapore. Even things like rolling out SWIFT or centralising domestic banking arrangements in some countries are very difficult. (SWIFT stands for Society for Worldwide Interbank Financial Telecommunication; it is a member-owned financial messaging cooperative.)

FX volatility a big issue 

In addition to regulation, the other key treasury challenge in Asia is the volatile FX landscape. Treasurers of course need to respond directly to FX volatility, and we will certainly continue to focus on our rigorous hedging processes. However, actually, the increase in regulation we have seen is in part a reaction to current FX rates, as Asian currencies weaken significantly against the US dollar, capital outflows increase and regulations are introduced to control the situation. These shifting FX rates and the individual country regulatory responses will ultimately have the greatest impact on our business. Countries that overregulate may trigger companies to question if potential future investments in those places will yield the returns needed. Profits are important, but we need to also be able to efficiently repatriate the cash for redeployment in other investments. 

Ultimately, the key to treasury management in Asia is to have a person based in the region in charge of treasury and tax that understands each culture and regime. If you have that—alongside good communications between them and the centre, so that you can verify what they are doing—it makes the region's complexity manageable.

This blog is part of Managing risk in challenging economic times, a research programme by The Economist Intelligence Unit and sponsored by Deutsche Bank. A white paper and an infographic, based on a survey of 150 corporate treasurers and 150 CFOs, were launched at the EuroFinance conference on International Treasury & Cash Management in Vienna, Austria, and on EIU Perspectives on October 12th 2016. The programme also includes a video interview with Karim Hajjar, group CFO at Solvay.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.