One of the world's leading cross-border payments specialists has released research suggesting that Australian clothing and textile businesses could be losing millions by not dealing with Chinese suppliers in local currency.
The report, by Western Union Business Solutions, surveyed 1000 Chinese businesses and found that while businesses in China were gearing up to receive direct payments in the local Chinese currency, renminbi (RMB), Australian importers are still largely utilising the US dollar (USD) to pay suppliers.
Among Chinese importers surveyed, 91 per cent had seen no increase in RMB payments since registering to be able to receive these payments.
Of concern for Australian importers in particular was the finding that one in five Chinese exporters add fees or surcharges to their invoices to account for the foreign exchange risk associated with receiving USD payments, which must be converted into the local currency at the prevailing rate. The average fee was three per cent.
As a result, Western Union Business Solutions’ general manager Australia Simon Glendenning said that, despite a range of new payment solutions available to make RMB payments into China, Australian clothing and textile businesses are potentially wasting millions in unnecessary fees and charges by continuing to trade in USD.
“Trade with China now accounts for 19 per cent of all Australian imports and last year was valued in excess AU$41 billion. Based on our research findings Australian clothing and textile businesses trading with China are potentially exposing themselves to more than AU$37 million in fees and charges from Chinese suppliers to cover the risk associated with receiving USD payments,” he said.
However, Western Union Business Solutions’ research found 38 per cent of Chinese exporters reported that their customers were reluctant to pay in RMB. More than half said this was due to customers perceiving it as inconvenient and difficult to access RMB.
“While USD has been the primary means for Australians to make payments into China, there are now a number of options available to importers to facilitate direct RMB settlemen," Glendenning said.
"Besides the benefit of avoiding additional fees, paying in RMB provides Australian clothing and textile businesses an opportunity to generate loyalty and goodwill with suppliers and, with that, the chance for improved terms of trade."
The Western Union Business Solutions’ research coincides with the company’s recent launch of direct payments into China.
The new service, designed to create a more streamlined cross-border payment process, allows for direct payments to China as opposed to the usual two-step process via a USD payment into Hong Kong and then a second payment into RMB.