China

110
Country starter pack
Business practicalities in China
How to repatriate funds
Step 1:
Annual audit and confirming amount
of funds available.
Step 2:
Record filing at State Administration
Tax office.
Step 3:
Submit application to a designated
foreign exchange bank.
Step 4:
Remit funds.
Getting paid
How a business is to be paid by its customers will differ
depending on the type of business structure deployed in
the China-based entity. But almost universally, Australian
businesses operating there nominated obtaining customer
payments in Austrade’s International Business Survey
(2015) as a key challenge.
Without an on-the-ground presence (a representative
office, a WFOE or a JV), payment must be remitted to
an Australian bank account by an agent or distributor or
by the customer himself if the business is selling directly
to Chinese consumers. Access to either a WFOE or
JV allows the business to open local bank accounts into
which payments can be made for goods and services.
Access to a representative office, allows the business
to still open local bank accounts, but these cannot be
used for trade or service purposes. Rather, they can only
be used for administrative purposes. Again, note that
when invoicing a customer for payment, many Chinese
companies prefer to be invoiced in US dollars, particularly
if they are already doing business with the US, although
the currency will be determined by the contract.
Choosing the right payment option
When competing to win contracts, the payment terms
can make a significant difference to the outcome. The
best payment option at any particular time will depend on
various factors:
• How much can the buyer be trusted and how much is
known about the company?
• Is this a first transaction? Or does it involve a
company which has a track record and is trusted?
• How much risk is the business prepared to take in a
deal of this nature?
• How large is the transaction?
• Is there an opportunity to bargain for more favourable
terms with this buyer?
Banks can assist in determining the most appropriate
payment terms to engage in when doing business in
China. These main payment terms are:
• Letters of Credit
• Document Against Acceptance, or Documents
Against Payment
• Cash in advance
• Open account
Letters of Credit (or documentary credit, import credit,
export credit)
These guarantee payment and receipt of title from
an independent party – the bank. They are therefore
recognised internationally and are the least risky way of
securing payment from new customers. Most Chinese
commercial banks and foreign banks with licensed Chinese
branches can issue a Letter of Credit. Generally, there is
no problem with Letters of Credit from Chinese banks
being accepted by Australian banks, although this should
be checked first, particularly if the transaction involves a
Chinese regional bank. Also, it is worth ensuring that all
Letters of Credit are received via SWIFT (the Society for
the Worldwide Interbank Financial Telecommunication).
It is very important that the documents submitted to banks
comply exactly with the strict conditions of the Letter
of Credit. It has been estimated that half of all Letters of
Credit are rejected by banks at first presentation because
they do not meet stated conditions. The Letter of Credit
should be checked against the terms of the purchase
contract and, if necessary, a buyer can be asked to make
any necessary amendments before the Letter is presented.
Documents that contain discrepancies should not be
lodged unless these have been pre-approved through the
banking system. Businesses failing to do so risk losing the
protection of the Letter of Credit.
Documents Against Acceptance, or Documents Against
Payment
These are used in ongoing business relationships and provide
some protection – but also some risk – for both parties.
They are easier to use and less costly than Letters of Credit.
With Documents Against Payment, the documents needed
to obtain the goods are only delivered to the importer after
they have paid for the goods. With Documents Against
Acceptance, the documents needed to obtain the goods
are delivered to the importer after they have accepted the
exporter’s bill for payment at a fixed later date. Needless
to say, the latter involves greater risk for the seller. Under
the former arrangement, the buyer only gets the goods