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# Sending Money to China: 10 Secure and Easy Ways to Pay Your Suppliers

Edmund Wise
4/9/2023
9
mins

When sending money to your suppliers in China, there are several things to keep in mind.

First—be aware of currency volatility. The yuan isn’t a free-flowing currency—the government controls its value.

Second—the Chinese government monitors any transaction over 10,000 RMB. Large payments have to first go through the central bank financial clearing and settlement system. By law, all recipients of those transactions will have to provide paperwork and a government-issued photo ID to authorise that transfer.

#### This article at a glance

Traditional banking is popular for B2B transactions amongst Chinese SMEs. Chinese banks are an integrated part of the tax report and refund process. By law, the tax office won’t accept financial documents provided by non-banking payment institutions.

In China, non-banking payment providers like PayPal are defined as ‘第三方支付' (Third-Party Payment). While hugely popular with small B2C transactions, SMEs are naturally hesitant to use them on a B2B level.

## Traditional banking methods

Because they operate in a tightly controlled economy, Chinese SMEs prefer traditional methods of banking.

Third Party Payment systems like Western Union might be cheaper and less time-consuming, but they’re unreliable, vulnerable to fraud, and can’t be used in the tax report and refund process.

Traditional banks are easier to monitor — therefore SMEs favour them for larger payments.

### 1. Bank transfer

Bank transfers are the simplest means of transferring money because they provide the least amount of anxiety for your suppliers.

It can be time-consuming, and costly — after all, a single payment will travel through the ﻿SWIFT network﻿ (Society for Worldwide Interbank Financial Telecommunications network)﻿﻿﻿﻿﻿﻿﻿﻿, meaning that every intermediary bank will take a cut of the payment.

SWIFT payments are bad for business — they take a commission from both the sender and the recipient.

For example, if you send $ 1,000, you’ll get charged a fee of $ 10. As the money travels through the system, an intermediary bank takes a cut of $ 5. Before the recipient has even received the money, their bank will charge them $ 10, leaving the recipient with $ 985. So, when considering SWIFT payments, be sure to agree to precise payment terms with your supplier in order to avoid any potential dispute.

The recipient will also have to provide a government-approved photo ID or transaction confirmation number upon the claiming of each payment. While a tedious obstacle, this can ease the anxiety of an SME — going through tried-and-tested state-sanctioned financial channels is better than risking a penalty for non-compliance.

### 2. Credit Letter

Credit letters are a great option for both buyer and supplier. And they’re about as traditional as you can get — they date back to Bronze Age Babylon.

Credit letters guarantee that the seller will receive payment from the buyer — if the buyer is unable to pay, the bank is obliged to cover the cost.

Be warned: Chinese SMEs are often reluctant to accept them — they are mostly favoured by international corporations making large payments. However, if you choose to pay with this option, be sure to do so with a third-party inspection clause — this will ensure that you only transfer the payment if the quality of the goods received has matched your expectation.

### 3. Escrow

Good for small payments and popular in China, escrow is a low-risk option. A middleman holds the funds until the buyer has received the goods. These conditions are set by both parties, or by the escrow payment service itself. Most escrow payment services take 5% of the transaction.

Acceptance for international escrow payments is fairly low. But Alibaba’s ‘Escrow Mode' (第三方担保交易模式) is a safe bet.

### 4. Sourcing agencies

There’s another option — you could use a local sourcing agency. Not only do they know the financial terrain, but (for a hefty fee) they will conduct quality control, negotiate contracts, and minimise the risk of importing goods.

Considering that acceptance for international escrow payments is low, using a sourcing agency seriously increases the likelihood of acceptance. Of course, this is a high-cost option. If you take the Chinese sourcing agency Supplyia as an example, the agency takes a hefty fee of up to 10% of the order cost.

### 5. International debit or credit card payments

Costly for buyers, risky for suppliers due to the prevalence of fraud, card payments are the last resort.

But there are options. For example, MasterCard has recently partnered with Bank of China to make a cross-border payment solution. By using MoneySend, receivers in China can receive money on the same day. Be warned — while Bank of China users won’t be charged service fees, those fees will be passed on to you.

### 6. Third Party Payments

Third Party Payment describes non-banking payment systems like WeChat Pay, Veem, TransferWise and PayPal.

Having grown in popularity since 2004 — when AliPay was first launched — Chinese consumers use Third Party Payment solutions in their day-to-day lives. Indeed, 92% of urban Chinese consumers used their smartphones to pay for things in 2018.

But when B2B transactions are brought into the picture, the story changes. As previously mentioned, Chinese law dictates that all large payments must go through the central bank financial clearing and settlement system. Understandably, Chinese SMEs are hesitant to use Third Party Payment services for B2B transactions.

That being said, many Third Party Payment solutions are a fantastic option for small payments.

### 7. PayPal

Great for small transactions, PayPal is popular among Chinese consumers owing to its language interface.

The downside is that PayPal hammers you with huge exchange rate costs. Adding up over time, fees like this make PayPal an unattractive option for large businesses, particularly when compared to Chinese alternatives like Alipay.

### 8. Western Union

Good for small and medium transactions, Western Union carries risks. Once the money leaves your account, you’re not protected — so only use Western Union if you have an established relationship with your supplier.

The other problem lies in hidden costs. While boasting famously low fees, Western Union makes money from their extortionate exchange rate — so be wary. Plus, the handling fee ends up being far higher than most banking services.

Be mindful, too, of the fact that plenty of Chinese banks — like the Agricultural Bank of China — have ceased cooperating with them. This should come to no surprise. Western Union has been plagued by instances of fraud, and the US government found that Western Union’s own agents were complicit in the scamming of pensioners.

### 9. Wise (formerly TransferWise)

An alternative to Western Union (and with lower costs), WISE sets the currency value at the mid-market rate.

A significant upside is that users can store their money in the currency of their choice until the time is right — and then send it.

If you want to minimise risk, you can also combine it with escrow or sourcing agencies.

### 10. Xtransfer

Filling the gap left by B2C systems like Stripe and PayPal, XTransfer offers cross-border payment solutions for businesses. Their services include local collection and payment.

Importantly, it’s accepted by the Chinese government — owing to its partnership with the China Council for the Promotion of International Trade (CCPIT), it’s favoured by Chinese suppliers. Moreover, the transfer fees are lower than most payment solutions.

Importantly for your suppliers, their software can connect with their corporate bank accounts — making their tax refund process a whole lot easier.

#### 10. AliPay

Alipay is popular among Chinese consumers for purchasing day-to-day things.

Micro and small enterprises are more likely to favour it. But Third Party Payment tools raise concerns among organized businesses — legal issues, internal workflow management, and ERP (Enterprise Resource Planning).

### An even easier way to pay your suppliers in China

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