Cash Management

Now and then I receive questions from companies outside of China wondering if they can open an account inside of China. Most often it is an importer that has been requested by their supplier to pay the goods in RMB instead of USD (the most commonly used trading currency in China.

The reason behind this request is of course the weakening of the USD against the RMB. For many, many years the RMB was pegged to the USD at 8.27, but during the summer of 2005 the Chinese government announced that the RMB should be valued against a basket of currencies. At the same time the RMB was also allowed to move on a daily basis within a regulated span. As a result the RMB rate today is 6.81 towards the USD. Quite a significant move.

For the Chinese exporters this new order has meant that they now have a currency exposure to take care of. The simplest way of getting rid of the exposure is of course to ask to get paid in RMB. The problem is though that RMB is a non convertible currency, making it impossible for an importer to ask their bank to make a payment in RMB to China.

But what if the importer could open an account inside China, transfer foreign currency to that account and exchange this money in to RMB. The supplier could then be paid from this account. A simple, logic and efficient solution that is working in most other countries, but unfortunately this is not the case in China. Only companies domiciled in China are allowed to open accounts with a bank in China. This goes for both foreign currency accounts as well as for RMB accounts.

But if the importer really is prepared to take on the currency risk from the supplier there is a solution. The invoice can be nominated in RMB, but it will state that on maturity, the importer will pay an equivalent amount in USD, calculated using the official USD/RMB rate as published by People’s Bank of China on the same date.

Hakan