Reluctance to transact in RMB ‘costing importers of Chinese goods billions’
Importers of Chinese goods could save billions by settling payments to Chinese trade partners in renminbi (RMB), rather than US dollars, according to data from a major non-bank FX payment provider.
Western Union Business Solutions (WUBS) conducted a survey of more than 1,000 Chinese exporters in November that revealed one-in-five companies bump up the cost of exports that are not settled in RMB to hedge against the steady depreciation of the US dollar against the Chinese currency. “What we are seeing here is due to a lack of education among importers that are used to paying in dollars,” says Neil Graham, Regional Divisional Director, UK, for WUBS.
“Many of these companies are likely to be unaware of the vast amount of money their reluctance to change their approach is costing them.”
Though such fees might sometimes be itemised on invoices, others might be built into the total cost of shipments. That makes the empirical calculation of the additional costs associated with non-RMB transactions difficult to calculate.
However, of the exporters that said they added additional fees, the average additional cost attached to non-RMB payments is about 3%, the survey shows.
Using this figure, WUBS estimates the extra costs facing US importers paying in dollars rather than RMB is around $2.4 billion, while UK and Australian companies are thought to be paying $285 million and $246 million in additional costs, respectively.
While the survey shows that well over a third of Chinese exporters preferred to be paid in local currency, only 2% said they always received payment in RMB and 15% said they occasionally received payment in local currency.
Furthermore, of those companies stating a preference to be paid in RMB, less than half of them are shown to have enquired whether their trading partners would consider switching RMB-denominated payments.
WUBS says cultural differences might also go some way to explaining the reluctance of Chinese companies to ask their trading partners to alter what has become conventional business practice.
“There seems to be almost a fear that asking trade partners to change conventional business practices could risk damaging the relationship if the answer is no,” says Graham.
Graham said the situation can be likened to a teenage high-school prom, with everyone wanting to dance but no one wanting to get up first to ask.
The US first developed trading links with China more than 40 years ago, and since then it has become the entrenched norm to pay in US dollars. Changing those attitudes can take time and requires willingness on both sides, explains Jenny Berlin, global head of public relations at WUBS.
Though the US is China’s number-one export partner, and the destination for nearly a fifth of all Chinese exports, the survey shows US customers are perceived as most reluctant to switch to RMB-denominated payments.
Of the companies surveyed, 42% named the US as the region most unwilling to settle in RMB, 23% named Europe and 13% named South East Asia. Australia was regarded as the country least reluctant to conduct more payments in RMB.