HSBC has implemented a foreign currency netting solution for a South Korean multinational company trading in China.

The pilot cross-border solution will help multinationals offset their foreign currency payables and receivables between their Chinese subsidiaries and their netting centres overseas, reducing the number of intercompany transactions and cutting processing costs and currency risk exposure.

It is the first time a foreign bank receives approval from the Chinese state administration of foreign exchange (Safe) to launch this type of netting solution, and is part of Safe’s foreign currency centralised management scheme for multinational companies.

The scheme is being piloted with a small group of Chinese and foreign companies and banks in Shanghai and Beijing, and aims to optimise the management of foreign currency in China with new solutions including centralised collection and payment, netting and automated cross-border cash concentration and intercompany lending transactions.

John Laurens, head of HSBC’s global payments and cash management, Asia Pacific, says: “This new development enables multinational companies in China to maximise their operating efficiency and adopt liquidity management structures that are in line with international practices. Given the fast-moving nature of the Chinese market, and the continued liberalisation of regulations, it is essential that international treasurers remain attuned and responsive to change in China in order to capture the opportunities arising from these recently launched pilot programs.”

Kee Joo Wong, HSBC’s head of payments and cash management in China, adds: “These developments represent a critical opportunity for companies to unlock additional liquidity and continue to globalise their liquidity position.”

Netting is a cash management technique that reduces the number of inter-company payables and receivables transactions and, in turn, the financial costs associated to these settlements.