Barclays on Export Week: Doing business in China

THE pace of economic and currency liberalisation is picking up in China but it is time to unleash the dragon and debunk some of the myths about doing business in the world’s largest consumer market.

With a population of approximately 1.4bn people and a growing consumer and middle class, China is a beacon of opportunity for UK exporters looking to expand globally.

According to HM Revenue & Customs’ overseas trade statistics, UK exports to China grew by a compound annual growth rate of 17% from 2006 to 2013, the second largest growth rate after Switzerland on 32%.

But entering a market as vast as China for the first time can be daunting, particularly for medium-sized UK companies with little experience of doing business in this part of the world.

Restrictions on the free movement of the Chinese currency, the Renminbi (RMB), may have also created uncertainty among companies about how best to pay for goods and services they sell to or import from China.

All this week Barclays will be writing about various aspects of trading internationally to coincide with UKTI’s Export Week. To read more click here.  

Martin Torreiro, who works in FX product management at Barclays, is confident China’s currency is on the rise.

“US dollars may still be the currency of choice for our UK clients doing business in China, but it is time to demystify the RMB. We encourage UK companies to look at trading in RMB. It’s a currency they can purchase from us to make payments to their Chinese suppliers,” he said.

James Webber, head of trade & working capital for Barclays in the Midlands, feels that UK companies wanting to do business with China will need to start familiarising themselves with the RMB.

“UK corporates will start to see more trade in RMB over the next few years,” he says. “Large companies will likely see evidence of this first, but smaller and medium sized businesses will also to an extent – regardless of their size.”

As more Chinese companies are encouraged to use RMB to trade internationally, Webber says UK importers and exporters will increasingly deal in letters of credit denominated in RMB.

Letters of credit are used for trade in China not only to mitigate credit risk but also to help Chinese suppliers to obtain credit, which can enable UK buyers to negotiate more favourable payment terms.

“When exporting, offering 60 to 90 day credit terms when being paid under a letter of credit may offer a competitive advantage,” Webber said.

“The letter of credit proceeds can be discounted immediately on presentation of shipping and other documents, thus accelerating cash flow.”

He also notes that there are now more means available to UK companies to help them manage payment risk in China.

“The market for credit insurance in China is growing in sophistication, and is increasingly available against Chinese buyers,” he said.

Although it is currently more common for larger Chinese businesses to both receive and make payments in RMB, Webber feels that change is imminent.

“Things won’t stay this way for much longer. UK companies should ask Chinese buyers and suppliers whether they can invoice or make payments in RMB, as there can be a discount or price benefit,” he said.

Given the range of support services available to UK companies looking to do business with China, Webber is optimistic.

He said: “The opportunity is there and so are the financial tools, so we’re seeing more and more small and mid-size companies take the export leap.”

When it comes to the export financing needs of UK companies that are funding operations in China, Barclays works closely with the UK’s export credit agency, UK Export Finance (UKEF), which launched a range of solutions including direct lending, working capital and bond support schemes, to help smooth the path for UK companies looking to set up in China.”

As part of its own activity during the week, on Wednesday (May 20) Barclays is hosting a webinar on trends and solutions in export finance, helping firms to maximise their international trading potential.

The webinar runs from 08:30-09:15 and it is free to register.

To find out how Barclays can support your exporting ambitions, please contact James Webber, head of trade & working capital in the Midlands on 07766 362470 or by email at james.webber@barclays.com