Selling in Chinese Yuan

Bankers say US exporters can increase their profits by accepting renminbi for payments instead of dollars By Trevor Williams

Companies exporting their goods to China can manage foreign exchange risk and save money by offering buyers the option to pay in Chinese yuan instead of US dollars, a panel of experts said in Atlanta.

Until four years ago, that wasn’t even on the table, but China has progressively opened the yuan for use in cross-border transactions involving corporations. A key turning point was last July 4, when China’s central bank allowed foreign companies operating within the country to invoice and pay dividends in yuan, also known as renminbi or RMB.

China’s “internationalization” of the RMB shouldn’t be confused with liberalization; its borders are still far from porous when it comes to moving money, and the process comes with a lot of paperwork and bureaucracy, said Kok-Chi Tsim, managing director for international banking at J.P. Morgan Chase Bank NA in Chicago.

Still, it could be worth it for many exporters as a means of cutting costs and attracting new customers, Tsim said at a breakfast seminar organized by the Georgia China Alliance and attended by more than 40 people.

“Being willing to accept RMB as an alternative trading currency, you can significantly increase your opportunities for both business as well as profit,” said Tsim.

Although most Chinese trading firms are used to settling in dollars, some smaller companies and nonprofits would prefer to pay in their own currency, he added. By shopping around, exporters can get better prices for their goods.

On the other hand, some Chinese buyers might be repelled by the prospect of paying in RMB. Some think the process is too cumbersome. Others justify paying lower prices by the fact that they’re assuming the currency risk of the transaction as the RMB rises against the dollar. By offering to accept RMB, the US firm takes on that risk but also gains more control.

Chinese partners that refuse to pay in RMB based on bureaucratic concerns are likely operating with old information that changed with last July’s reforms, intentionally or not, Tsim said.

“Don’t believe their excuses, because it’s no longer true,” he told an audience member who brought up common objections he’s faced in dealing with Chinese suppliers.

US exporters are dealing with the currency challenge in different ways.

Atlanta-based Micromeritics Instrument Corp. has been selling high-tech lab instruments measuring particle sizes to China since just after the country’s reopening in 1978. Two years ago, it opened a wholly foreign-owned enterprise, or WFOE, in China to begin making direct sales, protecting its technology and cutting out distributors who ate into margins.

The main customers are universities, which are required to use dollars for cross-border transactions in order to qualify for a value-added tax credit offered by the Chinese government.

That won’t change soon, but Micromeritics is also working to accept RMB in order to attract smaller business from private companies, said Bob Johnson, the company’s international business manager.

Companies buying from China can also benefit from using RMB.

On average Chinese exporters charge about a 5 percent premium to settle transactions in US dollars versus RMB, according to a Wall Street Journal study cited by Tsim.

Having some payment versatility gives the American company the ability to shop around, putting pricing pressure on its Chinese partner, said Mario Yearwood, vice president for foreign exchange at J.P. Morgan in Houston and another panelist.

Even if you don’t end up changing suppliers, the key is not to allow your Chinese partner dictate your currency strategy, Yearwood said.

“Your vendors are not going to work for your best interest. They’re in business to make a profit, so as friendly as they may be, they’re going to make sure they’re protected,” he said.

For more information about the Georgia China Alliance and its upcoming programs, visit www.georgiachina.com.

[author] Trevor Williams ([email protected]) is editor of Global Atlanta, a news service highlighting Atlanta’s business ties with the world. To receive an email newsletter focused on the Southeast U.S. and China, visit www.globalatlanta.com/subscribe, fill in your information, and check the China box. This story was reprinted with permission of Global Atlanta. [/author]