If you have 1 million yuan in your hands, what are you going to do to increase its value ?
A popular opinion is that investing into stock market before 2009, real property after 2009 to present, and let banks manage it from now on. The sought-after short term wealth management products of various banks exhibit the change of people’s ideas in managing wealth.
As our country entering the passage of raising interest rate and CPI soaring, money will gradually lose its value if we take no measures to maintain and increase it. Under such circumstance, from ordinary people to industry, how to maintain and increase the value of wealth has became a hot topic.
With over 30 years hard work, reform and innovation, the tobacco industry has accumulated strong wealth and abundant monetary capital. In production and operation, huge spending such as industry-wide technical transformation has came to a conclusion, thus boasting a considerable capital pool and stable cash flow. In this stance, the flexible investment of money has become a topic explored by the whole industry.
Cooperation promotes development
Value preservation and appreciation is necessary not only for assets but also capital of SOE.
At the National Tobacco Working Conference 2014, the party group of the State Tobacco Monopoly Bureau launched the task of “ensure the maintenance and appreciation of monetary capital by all means” for the first time and required tobacco enterprises to exert the advantage of capital stock, strength the strategic cooperation with financial enterprises, develop new financing channel and operation mechanism within the industry, and ensure the maintenance of capital in the whole process of assets management by paying attention to capital appreciation.
Judged from objective situation, only with free minds and idea of capital appreciation, the industry could follow the trend of interest rates liberalization. Since the beginning of this year, the transformation of interest rate has been further accelerated. People’s Bank of China allows commercial banks to increase deposit interest rate by up to 10% based on benchmark interest rate. Therefore, the State Tobacco Monopoly Bureau also encouraged tobacco enterprises to engage in strategic cooperation with banks, and gain interests revenue as high as possible by combining fixed term deposit and contract deposit.
As a company among top 50 global banks and top 10 domestic banks, IB has a long history of cooperation with tobacco industry. Since 1994, IB has established business relations with Fujian Provincial Company under China Tobacco Corporation. In 2001, Fujian Provincial Company under China Tobacco Corporation became a “diamond client” of Industrial Bank, and signed bank-enterprises cooperation agreement with IB. Under the agreement, IB provides the company with comprehensive financial services including fund-balance center, supervision of funds from tobacco business, payment at back office for tobacco business, consigned loan and agency salary payment. At the same time, China Tobacco Corporation and other two tobacco businesses, as the third largest shareholders of IB, are totally holding nearly 7% of IB’s total equity.
In 2013, Industrial Bank (IB) and China National Tobacco Corporation (China Tobacco) signed the Strategic Cooperation Memorandum, establishing a partnership based on “long-term cooperation, mutual support and common development”. According to the strategic cooperation memorandum, by improving services and products, accelerating financial innovation and exerting the advantages of diversified financial services, IB can provide tobacco industry with quality, efficient and customized financial services regarding cash management, capital financing and consulting and training. China Tobacco and its subsidiaries will also use IB and its branches and sub-branches as one of the key banks in providing financial services.
IB features wealth management by specialists
Innovation vs. regulation and safety vs. earnings are two key relations that must be handled carefully by tobacco businesses in wealth management.
Tobacco business has its own characteristics. For example, it is crossing agriculture, industry and commerce, connecting production, supply and marketing, and boasts a huge size of businesses, staff and fund. Although the industry has rich wealth, the management is also high regulated. The capital must be used strictly according to the four prohibitions (prohibiting from commissioned wealth management, prohibiting from guarantee for other business, prohibiting from securities investment and prohibiting from unauthorized investment) on finance management by the State Tobacco Monopoly Bureau. As a result, the capital management of tobacco industry cannot simply copy the practices of other industries. It must be customized, well planned, neither too conservative nor too aggressive. It should be innovated bravely and kept away from touching the red line of financial disciplines.
IB is well versed with the fund operation rules in tobacco industry after serving tobacco industry for years, and thus proposed the framework to optimize capital maintenance and appreciation specifically. Lin Shu, general manager of corporate business at IB head office believes that the co-existence of “high position” and “low position” is an important feature of monetary capital in tobacco industry. Most tobacco businesses have idle cash with plenty room to explore; some industrial enterprises have both idle cash and a large number of loans from outside parties; industrial enterprises have large number of loans and commerce companies boast huge idle cash, the fund accommodation between them is not good enough. Against such background, the capital has to be moved beyond the boundary of enterprises and allocated in a wider scope with the help from professional banking service in fund accommodation. Previously, IB has already built bridges between industrial and commerce tobacco enterprises in some provinces and successfully conducted several fund services such as commissioned loans.
Since the beginning of this year, targeting at the financial service demands of tobacco industry, IB has designed and submitted various financial service program covering comprehensive credit line, clearing service, capital maintenance and appreciation and trading platform for industrial and commercial businesses. For the general demands of a yield rate between 3%-4% for the monetary capital of tobacco industry, IB launched two fixed term deposit program and one current deposit program. In the fixed term deposit program, the bottom yield rate will be 3.5%, plus a floating interest rate that binding to high yield financial derivatives. In the current deposit program, enterprises only have to deposit the money into the bank and will enjoy a 3% annual yield rate.
Supporting real economy with differentiated innovation is IB’s service strategy to small and medium sized private enterprises. Similarly, invigorating real fund with differentiated innovation is IB’s service feature to big sized SOE. Innovation implies to better serve clients' demand than rivals. IB has always navigating in the “blue sea” banking business as an innovation pioneer and providing tobacco industry with professional and elaborate funding service.
Links: Cases on IB serving tobacco enterprises
Among 33 tobacco commercial companies and 17 industrial companies at provincial level, 15 and 13 of them have been cooperating with IB respectively in areas covering regular settlement, commissioned loans, back office deduction of cigarette sales and interbank proceeds payment from cigarette sales.
Agency deduction of proceeds from cigarette sales at back officeIB set up real time networking system with local tobacco companies and provides them with agency deduction of proceeds from cigarettes sales. It deducts proceeds of various types in cigarette sales from retail clients’ IB card in real time and help tobacco companies to collect proceeds in a timely manner.
Case: The service has been officially implemented in Fuzhou area since 2009. Now IB is one of the three cooperative banks for Fujian Provincial Tobacco Company in agency deduction of proceeds from cigarette sales at back office.
Central management for funds under the requirement of “separation between revenue and expenditure”
Based on the management requirements of “separation between revenue and expenditure” by tobacco companies, IB provide tobacco companies at various level with "central monitoring, central scheduling, central provision and central operation" capital service to member units by linking to fund management software with tobacco companies directly.
Case: IB Fuzhou branch provide capital management service for Fujian Provincial Tobacco Company, Xiamen branch for China Tobacco Fujian Industrial Company and Taiyuan branch for Shanxi Provincial Tobacco Company.
Fund supervision service for tobacco industry
According to the online requirement of sector fund supervision system by provincial tobacco companies, IB provide direct link service program to tobacco enterprises. By providing technical interface, banking system and internal fund management system of tobacco companies are interlinked seamlessly and in real time.
Case: Fuzhou branch, Xiamen branch and Changchun branch have cooperated with local tobacco companies in fund supervision.Fund supervision for buying and selling tobacco leaf
It is a fund supervision service provided to tobacco companies by linking IB’s banking settlement system and “settlement funds supervision system for tobacco leaf” of tobacco companies under the background of information management of tobacco leaf’s production and operation. The service assists tobacco enterprises in supervising the capital flow during the purchase and allocation of tobacco leaf and achieving the comprehensive supervision of tobacco leaf's production and operation across the whole industry.
Case: In 2003, IB obtained the qualification in settlement funds supervision for tobacco leaf, becoming one of the three qualified banks and the only joint-stock commercial bank with such qualification.
(Note: published on China Tobacco (May 2014), reporter: Huang Xueqin)