According to research, the reluctance of importers to use renminbi (RMB) when dealing with Chinese firms costs £180 million in unnecessary fees.

The research, by Western Union Business Solutions, also indicates that UK firms are potentially missing out on improving their ties with Chinese companies by not agreeing to settle in RMB.

The study of 1,000 Chinese firms showed that over a third of them (36%) would prefer to be paid in RMB. 23% said cited exporter convenience and reduced foreign exchange fluctuation risks as the main reasons for the preference.

20% of those surveyed said that they felt forced to add an average of 3% in fees to cover Forex risks.

But, despite this desire Chinese businesses felt constrained from asking to conduct business this way for fear of being rebuffed. 42% of those companies that had a strong preference for RMB settlement have never actually asked to be paid that way.

There is also a perception amongst Chinese firms that buyers will be unwilling to do this due to inconvenience and the possible difficulty in obtaining the currency.

As a result 91% of Chinese exporters have seen no increase in the level of RMB payments.

Those surveyed saw the USA as the hardest market to convert to RMB (42%) followed by Europe (23%) and South East Asia (13%) but Japan (8%) and Australia (2%) were seen as less unwilling. But of those companies that do bill in RMB 79% reported that they were happy.

Regional Divisional Director, UK, for Western Union Business Solutions, Neil Graham, commented “What we are seeing here is a lack of education among UK importers about renminbi and how easy it has recently become to conduct trade with it. Businesses are used to paying in USD and are unaware of the vast amount of money their reluctance to change their approach is costing them.

The number of Chinese companies conducting business in RMB will continue to grow and the renminbi’s ongoing liberalisation means Chinese exporters will increasingly demand payment in their local currency. Savvy businesses in the UK and Europe who change their approach to cross-border payments and trade in RMB will benefit from improved trading terms and relationships with their Chinese suppliers; those who do not will be behind the curve.

The problem here is lack of communication. Companies outside of China are not aware there is a real appetite among Chinese businesses for renminbi payments. Coupled with Chinese suppliers’ hesitation to ask for RMB in the face of perceived buyer reluctance, particularly in Europe and the US, and you get a no-win situation. If British businesses, however, were to break this cycle and offer to pay in RMB, it would strengthen their relationships with their Chinese suppliers and give them a competitive advantage in the Chinese marketplace.

Trading in RMB will also save them money, reducing their exposure to hidden fees while improving transparency, cost management and efficiency.”

Message to UK business? Never hurts to find out and ask.

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