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How to start paying Chinese Suppliers in RMB
( 5 mins. )
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10 August 2021
Senior Foreign Exchange Dealer at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.
China’s extraordinary growth in the last few decades has transformed its economy, building a sophisticated manufacturing industry that is closely integrated with international supply chains.
Together with China’s commitment to financial reforms and capital accounts opening means that the renminbi is becoming a global currency of increasing importance. Over 25% of cross-border trade with China is now settled in RMB and with the increasing USD/RMB volatility we see ever more Australian firms starting to pay in RMB instead of USD.
Today we look at a sample case of a company that has successfully transitioned to paying their suppliers in RMB.
The Client
The client specialises in the sale of garden furniture and has experienced a significant uptick in demand from the pandemic. They import their products from China and sell the goods to consumers in Australia.
- The client purchases from China with a monthly price cycle due to the volatility in USD/RMB.
- They get priced in RMB however are given a buffered USD/RMB exchange rate to pay their suppliers in USD.
- Historically – the price of goods have been stable, HOWEVER, over the last 18 months, they have seen prices rise every quarter.
- The client does not have the same flexibility with their clients and can usually only update their prices once a year.
The Solution
Step 1: First the client had an FX consultation with one of our Dealers
Step 2: We identified that the client was not using the right currency (USD) to pay their Chinese suppliers.
Step 3: To help to negotiate with the supplier the idea of paying in RMB, we introduced our Supplier Liason Director. Our Supplier Liaison team specialises in negotiating prices and debunking any misconceptions about paying in RMB.
Step 4: The supplier agreed to start receiving payments in RMB, understanding that they end up better off. And since the supplier is no longer exposed to USD/RMB price fluctuations, both the client and the supplier agreed to fix pricing for 12 months. (WIN-WIN)
Step 5: Now that the client has price stability with his purchases, he can now offer the same to his clients with the utilisation of Ebury’s Windowed Forwards.
The result is complete price stability in a volatile market! This client can now focus on doing what they do best!
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