As soon as you sign a contract with your Chinese partner, the problem of transferring money to China arises. We no longer perceive China to be far from us – you can reach it by plane in a matter of hours, and various technologies enable us to get in touch with people from Shanghai or Beijing, wherever we are. But when it comes to transferring money to China, things get more complicated.
Transferring money to China
Most importantly, we must be aware of the risks related to trans-border payments, especially in emerging markets such as China. Below, we present a few payment methods and the estimated risk level of each one.
Western Union and similar companies (risk level: HIGH)
Western Union is a worldwide money transfer and payments company and the favorite service provider for migrant workers who send their money home. But if you deal with overseas companies, using their services is not recommended.
According to Chinese law, every company should have its corporate bank account. A legitimate company will never ask you to send money via Western Union, mainly because the money can be withdrawn by anyone with valid credentials (and it is not difficult to prepare a fake ID). Moreover, as soon as the money is withdrawn, the Western Union doesn’t trace it (no chance of getting it back if something goes wrong).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 when someone, especially some anonymous internet user from a B2B portal, proposes transactions for order via Western Union.
PayPal (risk level: HIGH)
PayPal is an online payment service used by individuals and businesspeople. A PayPal account is connected to a bank account, and the money can be transferred conveniently from one account to another.
Since most of the process takes place on 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, scammers have their ways. If you plan to transfer a smaller sum, you can do it via PayPal, but you should always demand our partner’s proof of identity (scanned copy of ID or business license).
Hong Kong bank account (risk level MEDIUM)
Hong Kong is a special administrative region, formally part of China, but it has its corporate law regulations, which make registering a company relatively easy.
Many Hong Kong-based companies offer products that, in fact, were manufactured in mainland China. In many cases, the company is “located” in the owner’s laptop, and a PO Box is the only traditional way of contact. Therefore, sending money to a Hong Kong bank account is risky not because of the Hong Kong banks’ security level but because the company can be engaged in fraud.
Mainland China bank account (risk level MEDIUM/LOW)
Using a bank account is a relatively safe way of transferring money. Scammers may try some tricks, like an incorrect account number.
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 a Chinese company any longer. And then, as soon as this person withdraws the money, it is very hard to get them back.
Corporate China bank account (risk level LOW)
According to China’s Corporate Law, every company should have its 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 (such as to avoid taxation). Be wary of such practices because you can be scammed.
Letter of Credit (risk level LOW)
Letter of Credit is a trusted and convenient way of payment, but not very popular in China. Letter of Credit protects both sides – a certain amount of money is guaranteed by the bank, and the bank pays the seller as soon as they provide specified documents. Typically, the original Bill of Lading is accepted.
Unfortunately, most Chinese suppliers refuse to accept Letters of Credit, and related bank fees should also be taken into consideration. The value of the transaction should be more than 30,000 USD. Otherwise, the cost is considerably higher than a wire transfer.
Consumer Credit (risk level EXTRA LOW)
Well, have you ever heard of any medium-sized Western company which was able to get consumer credit in China? We neither. Rules of getting a loan were always harsh (also for Chinese enterprises), so better forget about this particular way of payment.
Transferring money to China – how to send money to China?
To sum up: various methods of transferring money exist, but in every case, we have to be very careful because we can lose our resources and never get them back. Chinese banking scandals have negative impacts on consumer confidence. The level of trust in banking services is relatively low in China. Thousands of Chinese prefer to take cash with them, pile it up in a suitcase, and try to cross the border control rather than go to the bank and ask for a transfer. We do not recommend this, though. We recommend wariness, patience, and common sense. Making transfers to China may be difficult, but it is not rocket science.
Are you importing from China? Make sure to add a payment terms clause in your commercial contract!