The Western Union Business Solutions Learning Center is a blog provided for general informational purposes only and should not be construed as legal, financial, tax  or accounting advice. Consult your own independent advisors regarding your particular needs and circumstances.


Making International Payments in the Chinese Currency

Since China has gradually allowed its businesses to engage in foreign transactions with the renminbi (RMB), some international businesses might be inspired to settle international payments with Chinese partners in yuan, the base unit of the RMB. In fact, the RMB has grown to become the world's 14th most-used currency for cross-border transactions, as of August 2012.[1]

Making the switch to transacting in Chinese currency might seem complicated. But armed with a few best practices, such as taking advantage of favorable exchange rates, small enterprises can actually hedge against currency risk and save money in the process.

The Disadvantages of Paying with Dollars

Before the Chinese government started taking steps to make the RMB a globally traded currency, international business owners routinely paid Chinese partners in their domestic currency, because it was the only legal option available. "For decades, if [an American small business] was doing business in China, chances are they were making payments in the U.S. dollar because the Chinese government did not allow businesses to be paid in the renminbi," says Alfred Nader, vice president of corporate strategy and development at Western Union Business Solutions.

Thirty-six percent of 1,000 Chinese businesses surveyed said that if they were given a choice, they would prefer to receive payments in RMB.

Learn More About Using Online FX

But since 2009, when the Chinese government allowed a handful of businesses to send and receive payments in RMB, the payment preferences of many Chinese businesses have changed.

In fact, 36 percent of 1,000 Chinese businesses surveyed said that if they were given a choice, they would prefer to receive payments in RMB as opposed to USD, Nader says, citing a Western Union Business Solutions 2012 survey.[2]

In some cases, Chinese businesses actually charge for payments received in their business partners' local currency. The average fee Chinese business owners add to payments made in foreign currencies is about 3 percent, according to the survey. "By doing this, the Chinese are protecting themselves from exchange rate fluctuations by passing on the risk to the payer by making them pay more," Nader says.

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Best Practices: Take the First Step

While it's clear that many Chinese business owners would rather receive international payments in RMB than in a foreign currency, many of them hesitate to make this preference known to international clients. "When [Western Union Business Solutions] conducted the survey in 2011, we found that many of the Chinese had never asked their American clients to be paid in yuan [renminbi] because they thought that it wasn't allowed in the U.S.," Nader says. "Eastern cultures, when compared with Western cultures, don't like to rock the boat."

To that end, when engaging in trade in the Chinese market, business owners can reach across the aisle and negotiate alternative international payment methods.

Use Hedging to Your Advantage

To get the most out of cross-border transactions with China, firms can work with a trusted online foreign exchange provider to obtain the real-time dollar to yuan exchange rates for their transactions in RMB.

By putting best practices into play, business owners can succeed in making the most out of their transactions in RMB and establish a transparent relationship with Chinese clients..

[1] "RMB internationalisation: Perspectives on the future of RMB clearing," October 2012, Society for Worldwide Interbank Financial Telecommunication (SWIFT)

[2] "Paying Chinese Businesses in Dollars Instead of Chinese Yuan Costs American Businesses $2.4 Billion in 2011," Feb. 27, 2012, Western Union Business Solutions

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