Announcements

Home > Announcements > Releases 2008 > Financial Issues in China from the Perspective of Japanese Companies and Banks Summary of Discussions from "Research Group on Financial Issues in China"

Financial Issues in China from the Perspective of Japanese Companies and Banks

Summary of Discussions from "Research Group on Financial Issues in China"

February 2008
Akira Kodama1
Center for Monetary Cooperation in Asia, International Department, Bank of Japan

Download the full text (PDF) 222KB

1. Introduction

Rapid economic growth is giving the Chinese economy more and more weight in the global economy. Under these circumstances, how to deal with the Chinese market is becoming an increasingly important issue for both Japanese companies and banks. From the perspective of Japanese companies, for example, China is no longer just a production base for Japan or other countries ("the world's factory"). It also has gigantic domestic markets, particularly in the coastal regions, ("the world's market"), that are increasing in importance.2  It should also be noted that many Japanese companies that establish production centers in China are increasingly procuring materials from local companies due to the development of supporting industries in the country. 3

Under these circumstances, the increase in both domestic sales and domestic procurement of materials in China has triggered the need for companies to use the Chinese yuan (RMB) as the settlement currency by which they collect sales prices and pay for parts and components. As a result, it is becoming increasingly important for Japanese companies operating in China to raise RMB smoothly as operating capital. Another important task for Japanese companies is strengthening credit risk management, particularly through assessment and monitoring of the creditworthiness of Chinese companies and individuals to which Japanese companies sell their products. With the expansion of domestic sales, in an increasing number of cases, credit is extended to purchasers and consumers in the form of accounts receivable, automobile loans, etc.

For Japanese banks, supporting the operations of Japanese companies in China has become a priority business. A key challenge facing Japanese banks is smoothly conducting RMB-related business, including RMB-denominated loans that accurately respond to the fundraising needs of Japanese companies. Furthermore, when China joined the WTO in December 2001, it provided concessions on operations within the country by foreign banks, including banks from Japan. As promised, the final geographic and customer-based restrictions on RMB-related services were removed by the end of 2006, and it has become a very important issue for Japanese banks to formulate "Strategies for China" in order to strengthen their bases of operations in China by embracing these policy changes affecting foreign bank operations in China.

In other words, the expansion of business in China has brought both Japanese companies and banks more deeply into "the world of RMB finance," and has made it more important than ever to address the issues that these developments raise. This led to the organization of the Research Group on Financing Issues in China by the Center for Monetary Cooperation in Asia of the International Department at the Bank of Japan. This Research Group consisted of experts from the industrial and banking circles in Japan who are involved in business in China. The purpose of the Research Group was to discuss "the world of RMB financing" from practitioners' viewpoints by approaching the subject from various angles, including fundraising, funds settlement and credit risk management.4  In the pages below, we summarize the major points arising from these discussions.

  1. Research Fellow, Center for Monetary Cooperation in Asia (akira.kodama@boj.or.jp)
  2. According to a survey by the Ministry of Economy, Trade and Industry, sales to the Chinese domestic market accounted for 55% of FY 2005 sales (by value) by the manufacturing subsidiaries of Japanese companies located in China (Ministry of Economy, Trade and Industry, "Survey of Overseas Business Activities", FY 2005 edition).
  3. According to the Ministry of Economy, Trade and Industry survey, local procurement makes up 52.4% of the whole by value.
  4. The Research Group met a total of 7 times between February and July of this year. Meetings began with presentations by members according to a set agenda, followed by open discussions.
(1st Meeting)
Overview of the Research Group (February)
(2nd Meeting)
Financial markets in China (March)
(3rd Meeting)
Issues in China's financial markets from the perspective of industrial companies (April)
(4th Meeting)
(1) Funds settlement in China; (2) Issues in China's financial markets (May)
(5th Meeting)
(1) Credit risk management from the perspective of industrial companies; (2) Credit risk management in China; (3) Credit risk in China (focusing on consumer finance) (June)
(6th Meeting)
(1) Assessment of financial market opening policies in China; (2) Trends among local banks and European/American banks in China (July)
(7th Meeting)
Major points of discussion in the "Research Group on Financing Issues in China" (July)

Participants in the China Financial Issues Study Group (Japanese phonetic order; * Rapporteur)

Masahiko Arakawa
General Manager, Credit Risk Management Division, Mitsui & Co., Ltd.
Masaaki Amma
Director General, JBIC Institute, Japan Bank for International Cooperation
Takehiko Ikushima
General Manager, Finance Department, Nissan Motor Co., Ltd.
Ritsuro Ishii
Senior Vice President, China Operations Promotion Department, Mizuho Corporate Bank, Ltd.
Koji Kanbe
Senior Vice President, International Banking Unit, Sumitomo Mitsui Banking Corp.
Shigeru Kido
Director and General Manager, China Finance & Accounting Solutions, Mitsubishi Electric (China) Co., Ltd.
Akira Suenaga
Joint General Manager, International Coordination Division, Mizuho Corporate Bank, Ltd.
Takayuki Suzuki
Senior Researcher, Asia Research Department, Mizuho Research Institute Ltd.
Kenichi Takayasu
Senior Economist, Japan Research Institute, Ltd.
Hideaki Tamiya
General Manager, China Business Division, Shiseido Co., Ltd.
Toshiaki Mugita
Deputy General Manager, China Division, Asian Headquarters, Bank of Tokyo-Mitsubishi UFJ, Ltd.
Ittetsu Mori
Manager, International Finance Team, Finance Section, Mitsubishi Electric Corp.
Yusuke Morita
Manager, Finance Division, Mitsui & Co., Ltd.
Akira Kodama *
Research Fellow, Center for Monetary Cooperation in Asia, International Department, Bank of Japan