Transferring money to China

As soon as you are able to sign a contract with your Chinese partner, the problem of transferring money to China arises. Normally, we now longer perceive China to be far away from us – it is easily reachable by plane, various technologies enable us to get in touch with people from Shanghai or Beijing, disregarding where we are. But when it comes to sending money, things get more complicated.

transfering money to China

Most importantly, we must be aware of the risks related with trans-border payments, which are especially high on the emerging market such as China. Below, we present a few methods of payment and try to estimate the risk level of each one.
1.    Western Union and similar companies (risk level: HIGH)
Western Union is the worldwide money transfer and payments company, and also the favorite service provider for migrant workers, who sent their money home. But if you deal with overseas companies, using their services is not recommended. According to the Chinese law, every company should have its own corporate bank account. Legitimate company will never ask you to send money via Western Union, mostly because the money can be withdrawn by anyone with valid credentials (and it is not difficult to prepare a fake ID), and even more, as soon the money is withdrawn, the Western Union doesn’t trace it (no chance of getting it back, if something goes wrong). So, be extremely careful with someone, especially some anonymous internet user from b2b portal, who proposes transaction via Western Union.
2.    PayPal (risk level: HIGH)
PayPal is a relatively new online payment service, used by individuals and business persons alike. PayPal account is connected with a bank account and the money can be transferred conveniently from one account to another. Because most of the process takes place in the internet, the users face the danger of phishing – fake confirmation e-mails may be generated or the account may be intercepted. The advantage of PayPal is that you send the money to the designated account, which is tied up with the bank account, owned by the individual or business entity. Of course, the scammers have their ways, but minor transactions may be as well done by PayPal, but we should always demand our partner’s proof of identity (scanned copy of ID or business license).
3.    Hong Kong Bank account (risk level MEDIUM)
Hong Kong is the special autonomous region, formally the part of China, but it has its own corporate law regulations, which make registering a company relatively easy. Many of the Hong Kong based companies offer the products of Chinese factories, in many cases, the company is “located” in the owner’s laptop and the only traditional way of contact is P.O. Box. Therefore, sending money to Hong Kong bank account is rather risky, not because of the Hong Kong banks security level, but because of the fact that the company may be involved In various frauds.
4.    Mainland Chinese Bank account (risk level MEDIUM/LOW)
Using bank account is a relatively safe way of transferring money. Scammers may try some tricks, we described risks related with incorrect account number in our “Import from China” guide. Much depends on the identity of the account: if it is a personal account, transferring large amounts of money is not recommended. It may be used by someone, who does not work for the Chinese company any longer. And then, as soon as the money is withdrawn by this person, it is very hard to get them back.
5.    Corporate China bank account (risk level LOW)
According to the China’s Corporate Law, every company should have its own corporate bank account. This is the most legitimate way to transfer money. Sometimes, the Chinese will ask you not to use the corporate bank account giving various reasons (f.e. in order to avoid taxation). You should rather be extra careful; agreeing for this elevates general risk level.
6.    Letter of Credit (risk level LOW)
It is a trusted and convenient way of payment, but not very popular in China. Letter of Credit protects both sides – the certain amount of money is guaranteed by the bank, and as soon as the seller provides the specified documents, the bank pays him. Typically, the original Bill of Lading is accepted. Unfortunately, most of the Chinese suppliers refuse to accept Letters of Credit, and related bank fees should be also taken into consideration: the value of transaction should be more than 30000 USD, otherwise the cost is considerably higher than wire transfer.
7.    Consumer Credit (risk level EXTRA LOW)
Well, have you ever heard of any medium-sized Western company, which was able to get a consumer credit in China? We neither. Rules of crediting were always harsh (also for Chinese enterprises), so better forget about this particular way of payment.

To sum up with: various methods of transferring money exist, but in every case we have to be very careful, because the fate of our business may be determined by a hasty decision. The level of trust to services, provided by banks, is relatively low in China: thousands of Chinese prefer rather to take physical cash with them, pile it up in the suitcase and try to cross the border control, than go to the bank and ask for the transfer. We do not recommend this though, what we recommend is wariness, patience and common sense: making transfers to China may be difficult, but it is not beyond our skills.