Challenges to Cross-Border Capital Management and Countermeasures

The novel coronavirus pandemic has hit many enterprises hard. Chinese multinationals face mounting difficulties in overseas cash management，cross-border payments and exchange rate risk management. As participants in a globalized economy，these companies must attach great importance to cross-border capital management，in order to come through this period safely. That means they must improve their internal management processes，and keep abreast of new policy moves，while emphasizing risk management.

The global economy has been dealt a heavy blow by the coronavirus pandemic. As Gao Feng，spokesman for the Ministry of Commerce，said at a news conference on April 30，the impact on China's foreign trade has mainly been on the demand side. The lack of external demand and the rise in economic uncertainties pose unprecedented challenges to China's corporate sector.  Chinese multinationals have been hit especially hard. They have new difficulties getting payments from overseas on time due to postponed project starts，business lockdowns，slower customs clearance，reduced transport efficiency，the effect of capital constraints on customers，and broad work-from-home guidelines. At the same time，weak demand has led to a crash in orders from overseas customers and that in turn has led to rising inventories. As a result，storage costs for finished goods and raw materials are becoming an increasing burden.

The efficiency of capital settlements has decreased. Compared with domestic transactions，cross-border services require more intermediate steps and documentation and that requires additional time.  That is because cross-border transactions are affected by factors such as the type of business，trading and settlement currencies and clearing methods. Since the outbreak of the pandemic，it has become more time-consuming for enterprises to obtain overseas funds as global payment and settlement systems have faced unprecedented challenges. Offline business has been halted completely，but not all of the international settlement business has been moved online. Consequently，many business documents cannot be obtained in time.

Moreover，the interconnection between domestic and overseas funds is facing bigger obstacles. For a long time，Chinese multinational enterprises have pursued the "unified management of global capital." Nevertheless，there still are barriers to the cross-border flow of capital owing to the great differences between the domestic and foreign economies in terms of the role of the market，the policy environment，financial supervision systems and credit rating mechanisms. What is worse，the pandemic which was first seen in China and then spread across the world，is likely to be prolonged. To address it，countries have introduced economic and financial policies one after another. Hence，the balance of domestic and foreign capital of multinational enterprises has been constantly changing.

Another challenge is from elevated foreign exchange risks. Many countries have been forced to shut down their economies to control the coronavirus. That has dealt a heavy blow to stock markets around the world and sent crude oil prices tumbling. Governments have responded with a raft of economic stimulus measures. The US Federal Reserve，for example，has opened the credit taps to ensure US dollar liquidity. But if there is no effective policy continuity in the future，turbulence in the foreign exchange market will be inevitable. Multinational enterprises need foreign exchange settlement services for many of their transactions and their financial costs will rise. That is particularly true for many emerging market countries such as Russia，South Africa and Turkey，which have seen their currencies become much more volatile. Currency fluctuations stemming from the pandemic create new risks for multinationals.

In addition，enterprises are under pressure to repay debt. Market demand has flagged and enterprises have been under lockdown orders for a longer period of time than expected. Cash inflows are insufficient. Meanwhile，fixed costs often cannot be reduced. Enterprises may be subject to liquidity risks and be unable to repay maturing debt if they have insufficient cash reserves. In the first quarter of 2020，10 enterprises，including three listed companies，defaulted on a total of 36 bonds traded on the domestic bond market. The defaults involved approximately 46.68 billion yuan，a record quarterly high. In recent years，many Chinese multinationals have made use of both domestic and overseas markets for financing，choosing the most advantageous options. This has helped reduce their financing costs，but in the midst of a global pandemic，it may be harder to be so selective. As a result，these companies may be under pressure to meet maturing domestic and overseas debt.

Countermeasures

One approach is to strengthen the control of domestic and foreign funds through cloud technologies. The novel coronavirus outbreak has been a severe test for enterprise management，especially in the area of cash flow. Cash is king at this time. Chinese multinationals have a greater ability to manage cash than small and medium-sized companies. Yet they are inevitably facing increasing difficulties in cross-border capital management under the global impact of the coronavirus pandemic. For example，with many people working from home，information exchanges may not be as timely or effective. Transport may also be less efficient，leading to logistics problems and disruptions of capital flows. The political and economic policies in these extraordinary times may result in challenges to the smooth allocation of cross-border capital.

In this context，it is reasonable for Chinese multinational enterprises to integrate information platforms as soon as possible，using blockchain，cloud computing and other technologies. In this way they can aggregate capital and collect information in real time，integrating financial business data.

Additionally，Chinese multinationals are expected to take advantage of cross-border business facilitation policies aimed at controlling the coronavirus outbreak. During the coronavirus pandemic，the People's Bank of China and the State Administration of Foreign Exchange have issued a series of measures to guarantee the security，阅读全部文章，请登录数字版阅读账户。 没有账户？ 立即购买数字版杂志