The Hanover-headquartered firm has executed its first renminbi loan in the first quarter and is expected to do more, Stefan Scholz, its head of finance and treasury in Germany, told CT.

The company tapped this scheme to find outlets for its liquidity surplus that has built up in China over the years. “Renminbi cross-border inter-company loans allow us to flexibly share liquidity between China and Europe and to avoid negative carry on group level—as in receiving low deposit interest in China and paying higher debt interest in Europe,” he said.

“In the old way, the only way to share liquidity was to pay dividends. But dividends are inflexible, and they cannot be paid at short notice and trigger withholding tax.”

The one-year loan was made available from Shanghai via Hong Kong, where its foreign exchange risk was hedged. “The interest rate was set to meet legal requirements and was based on applicable base rate plus an appropriate margin used for inter-company transactions,” Scholz added.

With promising growth in China and Asia, where group wide sales in Asia accounted for 18% of total sales in 2012, it is paramount for Continental to develop a strategy to manage cash while its sales increase in Asia.

Prior to the launch of the People’s Bank of China (PBOC) scheme, Scholz said there were limited ways to utilise its surplus cash in China, with the “main instruments being used were dividend payments and investment in new production facilities in China.”

The market has high hopes that the new pilot initiatives from PBOC and the State Administration of Foreign Exchange can further relax restrictions over capital and current account controls in China and make the internationalisation of its currency a reality.

For treasurers with operations in China, this is an opportunity of great significance. “This pilot fits into our plan to integrate China's cash position into worldwide operations further. We hope that the loan quota will be increased in the future,” Scholz added.