Why is it so Hard to Send Money to China?
June 29, 2017
The United States’ trade relationship with China is an important economic one. With nearly half a trillion dollars in goods being imported into the States from China in 2016 alone, it begs the question: why is it so difficult to make payments to Chinese businesses? Shouldn’t it be easier to send money to China?
Clearly, our country’s robust trade arrangements should allow for facilitated wire payments, but most small businesses who regularly send money to China know that the process is not only confusing and mired in a lack of transparency, but difficult. For example, as of the time of this writing, 50,000 Chinese Yuan would cost $6,740 at Bank of America and $7,900 at Wells Fargo, a difference of $1,160!
The Process is Murky
Not withstanding the foreign exchange disparities between different domestic banks, the most confusing and often most frustrating part of making payments to Chinese businesses happens during the actual wire transfer process. To understand how that works, consider that when you send money to China, first you go to your bank and make the conversion from US dollars to Chinese Yuan. As demonstrated above, you would already experience a $1,160 gap and lack of transparency. The next step involves providing banking information for the receiving party. With all of this information in hand, your bank forwards payment through to their clearing house with instructions on where the funds need to go.
Once the clearing house receives payment, the funds are moved to the receiving bank’s clearing house, where the transaction will ultimately be settled with the receiving bank and credited to the receiving party’s bank account.
The Fees Can Really Add Up
Unfortunately, knowing exactly what it will cost to send money to China is a little more difficult. A closer look at the process reveals:
- A trip to the bank to exchange your US Dollars into Chinese Yuan. You pay the bank commission fees (often hidden, as demonstrated above) for this service.
- A payment made to the clearing house for the payment. You pay wire transfer fees.
- The receiving bank’s clearing house receives the funds and notifies the Chinese bank. Fees get deducted from the proceeds.
- The receiving bank processes the transfer and credits their customer’s account. Fees get deducted from the proceeds.
If the above appears overwhelming, consider that this illustrates a fluid process that encounters no complications. But what happens when things don’t move so fluidly?
Small businesses sending money to China should not only be aware of the above process, hidden fees and disparities in foreign exchange conversion, but the very likely possibility that one, or many of the complications below will arise as well:
- Correspondent banking arrangements – if your bank or the Chinese bank does not deal with the same clearing house network, a correspondent bank will need to get involved, and additional fees are incurred.
- Investigation by OFAC – The Office of Foreign Assets Control monitors all payments sent out of the United States. If any part of your payment triggers an “irregularity alarm,” OFAC can hold up the payment, even if it was an error on your bank’s part.
- Investigation by the Hong Kong Customs and Excise Department (C&ED) – As with OFAC, the C&ED is responsible for protecting China’s economic interests. Anything may trigger an investigation, particularly if money is arriving from or going to someone new, and this will delay the processing of the payment as well, and potentially hold up goods waiting to be shipped.
With the above considerations in mind, it’s exceptionally important for small businesses sending money to China to ensure the wiring instructions are accurate and precise so as to guarantee a seamless payment.
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The Solution: Veem Global Business Payments
Despite all of the above, dealing with businesses and individuals in China isn’t prohibitive. With nearly half a trillion dollars sent to China last year alone, and expected to increase, plenty of businesses facilitate payments on a daily basis. However, there has to be an easier way, particularly in this disruptive age where payment processing has been simplified when dealing with, paying and receiving payment from non-domestic parties.
Small businesses dealing with vendors in China now have an option through Veem. We developed our global payments platform with small business in mind, making payments to China and more than sixty other countries easier and less costly—a totally transparent process during which you can see where your money is at all times, and no hidden fees.