Explore the advantages of Chinese imports in Yuan for your business

For years importers bringing goods in from China have been accustomed to paying in US dollars rather than Chinese Yuan. But things are changing, and this may no longer be the best route. This article by John Cairns and Gert Visser of RMB highlights the potential upside of yuan invoicing for South African importers from China, and how it can be a win-win for both parties.

Here are our thoughts on the ways both importers and suppliers can benefit from transacting in yuan:

Benefit 1: Lower pricing

Chinese suppliers stand to gain a number of benefits from invoicing in yuan. As a result, they may be willing to offer a lower price. Traditionally, Chinese exporters have included a protective element in their pricing due to the potential risk of currency fluctuations. Although they may be disinclined to give up the buffer, it’s well worth discussing a possible discount in which both parties could benefit.

Benefit 2: High liquidity

As one of the most traded currencies in the world, the yuan enjoys high liquidity. Online dealing systems and trading platforms make it equally as effortless for importers to hedge in the Chinese yuan as with dollars or other primary currencies.

Benefit 3: Lower risk

It’s no secret that the rand is one of the world’s most volatile currencies. Having said that, the CNY/ZAR is still less volatile than USD/ZAR. While lower volatility means lower risk in general market conditions, it’s particularly so in times of extreme market distress, such as the COVID-19 pandemic. Both the yuan and rand tend to weaken during these situations. However, the movements in CNY/ZAR are much more moderate than in USD/ZAR. This means that while the rand may decrease in value, it will be to a lesser extent on the yuan cross, thus limiting major currency losses.

Benefit 4: Faster rebates

What’s more, Chinese exporters that invoice in yuan rather than dollars may be eligible for faster rebates depending on the type of goods exported. This is especially true for smaller businesses where the wait time can be up to three months. It’s easy to see why this would be an enticing benefit for suppliers.

Benefit 5: A favourable environment

In the past few years, the Chinese government has been focussing their efforts on ensuring that the yuan joins the US dollar as one of the world’s foremost reserve currencies. To this purpose, the government gives its full backing to exporters who choose to use the yuan in settling export deals.

 

It’s plain to see that yuan banking has no discernible drawbacks. South African importers seeking to benefit from yuan invoicing should explore these opportunities. A good place to start is by asking Chinese suppliers to issue invoices in both dollars and yuan. This is a great way to review the differential and open negotiations that could lead to better pricing.

In some cases, Chinese suppliers might still opt for invoicing in dollars. This may be due to the fact that their imports are also priced in USD, thus making their budgeting more straightforward. Despite this, it’s worth engaging in an open conversation about it by using these five major benefits as bargaining tools.

To speak to an expert in our specialist business team, email enquiries@currencypartners.co.za or call us on +27 21 203 0081.