Case Study: Retail

China Tourism Group Duty Free Corporations Limited (CTG DUTY FREE) is a duty free operator that runs duty free stores worldwide across a wide range of channels including airports, inflight, borders, ship supplies, passenger depots, railway stations, diplomatic personnel, cruises and downtown stores.

CTG DUTY FREE started to run increasingly diverse types of duty free stores over a vast retail sales network around the world. As CTG DUTY FREE tapped into more offshore markets, the group sought to centrally manage overseas investment projects with an aim to enhance visibility and control over cross-border treasury governance, as well as to improve its foreign exchange trading ability and management quality.

Established in 1996 in Hong Kong, China Duty Free International (CDFI) is a wholly owned subsidiary of CTG DUTY FREE, responsible for procuring duty free merchandises from international suppliers for group members, as well as managing the group’s overseas investment projects and outreach. Since 2020, CDFI assumed the role as the group’s offshore treasury centre (“CTC”), and gradually built a cash management structure that encompasses Hong Kong, Macau, Cambodia, and other regions.

To achieve centralised settlement, the group partnered with a Chinese bank with strong international presence to introduce an integrated system connecting the bank and various offshore companies, which comprised multi-currency bank accounts and differentiated access rights granted to treasury employees. The system enables “one-point access” that centrally manages the group’s multitude of point of sales and system developers. Offshore entities are swiftly interconnected, which further promotes cross-country and cross-region cooperation within the company.

As for cash pooling, CDFI began to centrally manage the group’s idle liquidity in 2020, connecting the sub-accounts in Cambodia, Macau and Hong Kong with the header account of the Hong Kong CTC. This structure is complemented by a variety of banking products including yield enhancement plans, internal interest pricing service, account enquiry service and diversified reporting systems.

To serve CDFI’s online foreign exchange need, the partnering bank offers cash pooling services for more than 17 currencies and remittance services for more than 30 currencies. In addition, CDFI uses the real-time settlement system of the bank for the purchase and use of foreign currencies in payments. As the headquarters and a number of duty-free stores and operators are located in the Chinese mainland, a substantial amount of CTG DUTY FREE’s transactions are settled in RMB. Currently, the group’s cross-border RMB transactions are also handled by the CTC and its partnering bank in Hong Kong.

As a major international financial centre, Hong Kong has unique edges in terms of capital safety, financial ecosystem, talents and infrastructure. Hong Kong also has a simple tax system and robust business infrastructure, and both of these unrivalled advantages are crucial for duty free sales business.

Moreover, CTG DUTY FREE’s global presence requires their CTC destination to be able to offer comprehensive cross-border financial services, with the group’s largest distribution market in the Chinese mainland, whilst its suppliers located across the globe and some of its stores located in offshore airports and downtowns. Setting up a CTC in Hong Kong allows the group to use Hong Kong as a hub for onshore and offshore funds and leverage Hong Kong’s cross-border bilateral cash pooling infrastructure to build an interconnected global cash management structure for its global businesses.

Since the establishment of the CTC, CTG DUTY FREE achieved enhanced visibility over cross-border treasury governance, and benefited from labour cost reduction in its Beijing headquarters as well as subsidiaries in Hong Kong and other places.

With the CTC, the treasury settlement function has been optimised, resulting in 560% growth in online CTC transactions and 89% increase in centralised settlement volume of CDFI. The CTC has also received higher volume of deposits collected from subsidiaries across different countries and regions, and is enabled to improve its foreign exchange trading ability and management quality by carrying out transactions with other countries in dozens of currencies.