Paying Chinese Businesses in Dollars Instead of Chinese Yuan Takes Financial Toll on Los Angeles Businesses, Finds Western Un...
February 27 2012 - 6:00AM
Business Wire
Western Union Business Solutions, a business unit of the Western
Union Company (NYSE:WU), a leader in global payment services, today
announced results of a survey of Chinese companies which found that
by settling transactions with Chinese exporters in U.S. dollars
(USD) instead of Chinese yuan (CNY) American businesses paid
approximately $2.4 billion in fees to account for foreign exchange
risk.1
The industries most affected by these transaction fees are those
that import the highest level of goods and services from China by
transaction value. In Los Angeles, the number one industry that
made payments to China in 2011 by value according to Western Union
Business Solutions data is the textile industry, followed by
universities and construction companies. LA-based universities in
particular saw strong growth in the amount of money they sent to
China in 2011, with the value of payments more than trebling
compared to 2010. The textile and construction industries grew by
38% and 10%, respectively, while payments made to Chinese companies
increased by 71% for the city as a whole.
“The U.S. is the number one export destination for companies
based in China,” said Alfred Nader, Vice President of Corporate
Strategy & Development, North America, at Western Union
Business Solutions. “To date, the vast majority of transactions
between companies based in the U.S. and China have been settled in
American dollars. It is time to take a step back and evaluate to
what extent it makes sense for American companies to continue to
pay Chinese exporters in something other than their preferred local
currency.”
Western Union Business Solutions’ survey of more than 1,000
Chinese companies who are able to settle merchandise exports in CNY
(known as mainland designated enterprises, or MDEs) reveals a
desire in China to receive payments in their home currency. The
results show that more than one third (36%) would prefer to be paid
in CNY, with over 20 percent naming exporter convenience and
reduced foreign exchange risk as the main drivers for that
preference.
Despite this appetite, however, 42 percent of the surveyed
companies never ask their overseas trading partners to pay in yuan
due to perceived buyer reluctance. Companies in China largely
attributed this reluctance to inconvenience (33%) and the seemingly
difficult process experienced by partners in obtaining CNY for
payment purposes (20%).
To account for the foreign exchange risk associated with
settling in currencies other than CNY, one in five companies
surveyed said they add fees of, on average, three percent of the
total transaction cost.
“Chinese exporters would prefer that their trading partners pay
in yuan, but most are afraid to ask because they think they will be
rebuffed,” said Mr. Nader. “There are easy and inexpensive ways for
companies in the U.S. to settle transactions without using USD,
which could generate increased goodwill and loyalty among their
Chinese trading partners, not to mention cut the cost of doing
business.”
Another key finding of the survey is that companies in the U.S.
are seen as far more unwilling to settle in CNY than those based in
Europe. In fact, the U.S. was named as the most reluctant market
(42%) with Europe (23%) and South East Asia (13%) placing second
and third. Japan (8%) and Australia (2%) were seen as the least
reluctant.
“Importers that are flexible and savvy in their approach to
cross-border payments will find themselves well-placed to compete
in today’s global marketplace,” added Mr. Nader. “Adapting to the
on-going liberalization of the CNY is especially significant when
one considers the growth opportunities that exist for companies
that do business with China. The goodwill and supplier loyalty that
would be created by American companies who offer to pay in yuan
present a real opportunity for them to gain a competitive advantage
when trading with the world’s second largest economy.”
Notes to Editors:
About Western Union Business
Solutions
Western Union Business Solutions enables companies of all sizes
to send and receive international payments and manage foreign
exchange, creating unique solutions tailored to suit their FX
needs. Western Union recently acquired Travelex Global Business
Payments and is a leading nonbank provider of business payments,
operating its Business Solutions services through locally licensed
affiliates in 23 countries. Supported by a network of trading
offices, strategic banking relationships and a global clearing
network, businesses can send cross-border payments in more than 140
currencies, including RMB. Western Union Business Solutions
provides services in the US through Custom House (USA) Limited and
Travelex Global Business Payments, Inc.
"Travelex" is a registered trademark of Travellers Exchange
Corporation Limited and is used by Travelex Global Business
Payments Limited and its affiliates (including Travelex Global
Business Payments Inc.) under license.
For more information visit
http://business.westernunion.com/.
About Western Union
The Western Union Company (NYSE: WU) is a leader in global
payment services. Together with its Vigo, Orlandi Valuta, Pago
Facil and Western Union Business Solutions branded payment
services, Western Union provides consumers and businesses with
fast, reliable and convenient ways to send and receive money around
the world, to send payments and to purchase money orders. As of
December 31, 2011, the Western Union, Vigo and Orlandi Valuta
branded services were offered through a combined network of
approximately 485,000 agent locations in 200 countries and
territories. In 2011, The Western Union Company completed 226
million consumer-to-consumer transactions worldwide, moving $81
billion of principal between consumers, and 425 million business
payments. For more information, visit www.westernunion.com.
1 Western Union Business Solutions’ research found that one in
five Chinese exporters added an average of three per cent in fees
or surcharges to account for FX risk associated with receiving $USD
payments. Based on the U.S. Census Bureau figures for 2011, there
was $399 billion worth of merchandise imports from China into the
United States. On this basis the value of FX related fees charged
by Chinese exporters is approximately $2.4 billion, or three per
cent of the value of one-fifth of the United States’ total imports
from China.
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