Little information is available on the current financial management practices by firms outside the free world. The People's Republic of China is a case of special interest because of the lack of survey data A working relationship with the Changsha Communications University (Hunan Province) reduced the difficulties associated with gathering data on Chinese state enterprises. The University is one of twenty-four campuses in P.R. China which are supervised by the Ministry of Transportation. An annual seminar on Management Accounting for transportation companies is held at Changsha Communications University. A Chinese language questionnaire dealing with different aspects of cash and foreign exchange management was distributed to all participants of the 1991 seminar. Notwithstanding the small size of this data base compared to the population of Chinese state enterprises, we believe that inferences derived from the available data base are very useful. Although few of the companies surveyed are directly exposed to foreign exchange risk, it is useful to briefly discuss the Chinese government policies on managing its exchange rate. P.R. China has an adjustable peg system in which the Renminbi (RMB) is linked to the U.S. dollar. China's official reserves are mostly held in U.S. dollars while the U.S. dollar is the main currency of denomination for international trade transactions. The RMB has been depreciated against the U.S. dollar at infrequent time intervals making the currency temporarily overvalued. An overvalued RMB reduces the costs of the much needed imports while it has no detrimental competitive impact on exports considering the low (labor) costs of products manufactured in mainland China. Under international pressure, particularly from the GATT and the U.S. government, the Chinese government has gradually reduced its foreign exchange controls and import restrictions and is determined to make the RMB freely convertible in the near future.
The purpose of the survey was to investigate responsibilities and practices for short term financial management. A study of cash management must inevitably be linked to the study of banking relations and the management of foreign exchange. In recognition of these interrelationships, this study addresses the following specific issues.
Responsibility for cash management. It is hypothesized that cash management constitutes a major financial function in the firm and consequently, the responsibility for it within the firm should reside with senior management.
Cash flow planning. The preparation of formal cash budgets is a fundamental cash management activity. We investigate whether or not these Chinese state enterprises use some systematic procedure to project cash flows, as well as the extent to which formal quantitative models are used for cash management.
Banking relationships and the use of cash management services. We investigate the number of banking relationships these Chinese state enterprises have, the use of cash management services provided by banks and the degree of customer satisfaction relative to the services received.
Computerization of cash management. Balance reporting, electronic funds transfers, quotations of money market rates, and cash flow forecasting are some of the areas where computerized decision support systems have been developed to help those responsible for cash management. Also investigated in this study is the extent to which surveyed companies make use of computers in cash management.
Conflicts with other departments. Effective cash management requires information and active cooperation from other departments in the firm. The pursuit of fulfilling budget targets and corporate goals can result in opposing interests for different departments within the same enterprise. This survey tries to determine which departments are most likely to be in conflict with those responsible for cash management and how these conflicts are resolved. …