Making Payment to China: Paying Chinese Suppliers in RMB

Jun 22, 2024 Chapter 3. Payment

In today’s trading landscape with China, choosing the right currency to pay suppliers—whether it’s RMB, USD, or GBP—can significantly impact your bottom line. Recent fluctuations in the USD/CNH exchange rate have brought this decision into sharper focus.

 

When purchasing goods from Chinese suppliers, transactions typically involve USD, GBP, or the Chinese yuan (RMB/CNY/CNH). However, with the yuan depreciating against the USD since spring 2023, businesses are reassessing the wisdom of sticking with traditional USD or GBP payments versus switching to RMB, the official currency of mainland China.

 

Here’s what businesses need to consider:

  1. Impact of Exchange Rate Fluctuations: Since spring 2023, the USD/CNH rate has risen by almost 7%, boosting earnings for suppliers invoiced in stable USD. This means suppliers receive more RMB for the same USD transactions, potentially affecting your purchasing power.
  2. Buffering Against Exchange Rate Volatility: Chinese suppliers often include a buffer in their USD pricing to guard against currency swings, protecting their profit margins. This practice complicates decisions for importers aiming to optimize payment currencies.
  3. Optimizing Payment Choices: Supplyia recommends businesses explore dual-currency invoicing, offering invoices in both USD and RMB. This flexibility allows businesses to choose the more advantageous currency at payment time, balancing risk and cost-effectiveness.

 

 

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payment scams case

 

 

 

Why Paying Chinese Suppliers in RMB?

Paying Chinese suppliers in RMB (Renminbi), also known as the Chinese Yuan (CNY), can be advantageous in several ways:

  1. Reduced Currency Risk: When you pay in RMB, you avoid currency exchange rate fluctuations between your currency and the supplier’s currency (typically USD). This stability can simplify financial planning and reduce costs associated with currency conversion.
  2. Cost Savings: Some suppliers may offer discounts or preferential pricing if you pay in their local currency (RMB). This is because they save on currency conversion fees and potential risks associated with currency fluctuations.
  3. Convenience: If you have operations or investments in China, keeping funds in RMB can simplify accounting and financial management processes. It also facilitates smoother transactions within the local market.

 

 

How to Pay to Chinese Suppliers in RMB?

  1. Agreement with Your Supplier: Ensure the contract specifies RMB as the payment currency.
  2. Opening a Bank Account: Open a bank account that supports transactions in RMB, if necessary.
  3. Understanding Regulations: Familiarize yourself with relevant regulations in your country and China.
  4. Exchange Rate: Monitor the exchange rate between your home currency and RMB.
  5. Payment Methods:
    • Wire Transfer: Direct bank-to-bank transactions.
    • Letters of Credit: Used for larger transactions as a payment guarantee.
    • Online Payment Platforms: Check availability and fees.
    • China RMB Payment Agent Service   General the service commission fee is 3.5-6% of the total amount.
  6. Transaction Fees: Be aware of and manage transaction fees.
  7. Documentation and Invoices: Keep clear records of all transactions.
  8. Tax Considerations: Consult a tax advisor regarding payments in RMB. Indeed, if you are involved in making corporate payments to Chinese suppliers, you might encounter some tax implications. Here are a few key points to consider. Value Added Tax (VAT): In China, sales of goods and services are typically subject to Value Added Tax (10-13%). If your transaction involves purchasing physical goods from China, your supplier may include VAT on the invoice.

 

 

 

 

 

Challenges and Considerations When Using RMB for Domestic Payments in Export Transactions

Indeed, if you use RMB through a corporate account to pay Chinese suppliers and treat the transactions as domestic, this can complicate the standard export process.

In China, exporting goods generally involves a series of export approvals, tax, and customs processes, which are standardized when using foreign currency payments.

Here are some specific issues and considerations when using RMB for domestic payments that might affect the regular export process:

Issues with Export Tax Rebates

  • Ineligibility for Export Tax Rebates: The Chinese government offers tax rebates to encourage exports for certain exported goods. If a transaction is treated as a domestic sale, these tax rebate benefits cannot be accessed, increasing the cost of the products.

Goods Circulation and Regulation

  • Export Control Regulations: Exporting goods from China requires export customs declaration and must comply with export goods regulatory requirements. Payments made in RMB that are treated as domestic transactions may not go through proper export customs, leading to inability to export goods regularly.
  • Goods Circulation Issues: If goods circulate without proper export procedures, it could lead to inspections and fines from customs and other regulatory bodies.

Currency Liquidity and Fund Security

  • Issues with Fund Liquidity: Domestic transactions may involve stricter controls on fund flows and currency exchange, especially for large sums.
  • Fund Security Concerns: Domestic transactions might require additional financial and legal safeguards to ensure fund security, particularly in cross-border transactions.

 

 

 

Solutions and Alternative Strategy: China RMB Payment Agent Service:

A China RMB payment agent service acts as an intermediary that helps businesses outside of China make payments to Chinese suppliers in RMB.

These services are especially useful for businesses that do not have direct access to Chinese banking facilities or those looking to streamline their payment processes to ensure compliance with Chinese regulations.

 

 

As noted earlier, international transactions involving escrow are often met with low acceptance rates. However, when purchasing through a local Chinese office, the likelihood of acceptance significantly increases. This is why some importers opt to engage a local sourcing agent to facilitate their orders, utilizing an escrow arrangement.

This approach mitigates risks considerably, provided that communication is impeccably clear. However, there remains the possibility that the agency could reject the goods and retain the escrow payment.

Engaging an agency also introduces an additional layer of costs into the transaction.

Sourcing agencies may be particularly suitable for smaller transactions where paying extra to minimize risks is a priority.

 

Indeed, the demand for China RMB payment agent services is particularly high among businesses from Russia and Ukraine.

 

 

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