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Example: China (payments)

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Credit information

Annual accounts are seldom available. Some basic company information can be retrieved from the National Enterprise Credit Information Publicity System (http://gsxt.gdgs.gov.cn/). And there are several credit agencies which can supply more details of the companies in questions, some can include financial information in the credit check. The availability of the financial information depends on the availability of data from local taxation authorities. Basic information can be supplied in about 10 days, financial information can be provided in about 20 days. 

Currency restrictions

The Chinese currency CNY is not fully convertible. The Chinese buyers are allowed to purchase foreign currency freely in current account items but it has to be supported by real transactions.

Foreign exchange in China is under the supervision of the State Administration of Foreign Exchange (SAFE). SAFE has designed a policy on the requirements that should be fulfilled before conversion and remittance of foreign currency can take place. Banks are required to follow the rules laid out by SAFE and review all the required supporting documents such as contracts, invoices and tax clearance/ exemption certificates, before converting CNY into the appropriate foreign currency for settlement of overseas invoices. For special types of payments, SAFE approval may be required.

Payment in CNH (China Offshore Spot) is allowed for export/ import of goods and services. Contact your bank for details. 

Forms of payment

Clean payment

Clean payment is a used method, however there may be risk for payment delays. Cash discount are not applicable.

15% - 30% of the total value as advance payment is a common practice. An advance payment guarantee issued by a Swedish bank is also required.

If the prepayment is more than 30 days prior to the goods import ( eg 40 days), the related info of the prepayment transaction needs to be submitted to the local foreign exchange bureau through the monitoring system within 30 days after the prepayment is conducted.

The Chinese buyer will need a proforma invoice and the purchase contract in order to conduct the advance payment regardless of the amount.

Documentary Collection

Documentary Collection is a used method, however there may be risk for payment delays.

Letter of credit

Letter of Credit is commonly used in China and that is also our recommendation to use payment against L/C and preferably confirmed by a Swedish bank. (Often silent confirmation). The risk fee on China is relatively low and with a confirmed L/C the risk is covered quite well.  L/Cs are also used to a small extent among the new small commercial banks. Make sure to check the bank with your Swedish bank before isuing a L/C.

At sight L/Cs predominate. Payment terms over 90 days are rare as they require approval from SAFE. L/Cs on China are often payable in China. Payment is made within seven to fifteen days after document presentation in China. Payment outside of China is accepted if the goods are of particularly high demand. Check the L/C against the commercial contract/quotation to ensure that they agree.

China has adopted the ICC rules. Check that the L/C text is in line with ICC rules.

Penalty interest

The penalty interest is becoming more and more frequently used in Chinese sales contract. Usually the company penalty interest is 0,1 - 0,5% per day overdue. Penalty interest must be specified in the sales contract.

Guarantees

Direct O/D guarantees are commonly used. URDG 758 is acceptable.

It is preferable to accept a Letter of Credit rather than payment guarantee for covering the credit risk. 

Bill of exchange

Commonly used in domestic trade but not in international trade.

The EKN Country Policy

November 2018: Premium class 2.

 See also under risk and riskcoverage - EKN.

Credit insurance companies

Atradius Open.

Euler Hermes Sverige  Open.

Other forms of security

There is also a law on collateral. However, the process of registering and perfecting the collateral is complex and decentralised. There is no central register.

Legal action

Reminder and collection procedures

There are no collection procedures. Statute of limitation is 2 years.

Enforcement measures

Enforcement of private law judgments:

No agreement exists between Sweden and China regarding the enforcement of private law judgments.

China introduced a modernized bankruptcy law in 2007 but The Bankruptcy Institute is used relatively infrequently, and foreign creditors opportunities to win the case is uncertain.

Enforcement of arbitration awards:

China is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

See the description in the section Legal action.

Miscellaneous

China is a member of the WTO, ADB, IMF, IBRD and IFC

Several local and foreign banks now have a license to handle import/export business.

For exports of equipment that is to be installed, about 10% of the purchase price is normally retained, which is normally released once the buyer has signed an acceptance record. You should therefore always make sure that this part of the payment is secured via an L/C or under a separate guarantee.

When selling from a foreign company to a Chinese company and the goods are produced in China there is no possibility to effect overseas payment due to Chinese foreign exchange control. Without import documents (Customs clearance documents) the buyer can not make payments overseas.

Many foreign companies with production as well as sale in China establish WOFE (Wholly Owned Foreign Enterprises) or FICE (Foreign Invested Commercial Enterprise). The transaction is made between the subsidiary and the Chinese buyer and the subsidiary can transfer overseas payment to the mother company abroad.

When exporting services to China, 6% of the invoice value is withdrawn as “Value added tax” paid by the Chinese buyer. There is also “Withholding corporate income tax (CIT)” which is calculated as 25% of the deemed profit. The deemed profit is a rate decided by the local tax office and range between 15% to 50%. In most cases, the withdrawing CIT rate is approximately 10% of the invoice value. Usually the withholding CIT is borne by the Swedish company due to the fact that the Swedish company can deduct the CIT as stated in Trade regulations between China and Sweden.

Chinese buyer of services is required to fill tax filling for single payment over USD 50,000 with the local taxation bureau.

All in all, rules and regulations related to foreign exchange and taxes do often change.

Some Chinese companies may request payment into an employee's private account for the company to avoid tax. This violates the Chinese law. A serious Chinese company should have an account that can receive money from abroad.

The former British crown colony of Hong Kong belongs to China since 1 July 1997. Though Hong Kong  is a city of China, trade between Hong Kong and the mainland is still regarded as international trade. We report Hong Kong in a separate section.