Paying in Dollars or Yuan: Exchange Rates and Hedging

On the export side, the US dollar remains the reference currency for Chinese factories: most proformas arrive in USD. The yuan, officially the renminbi, ISO code CNY, is gaining ground: China has been pushing cross-border settlement in its own currency for years, and many factories can invoice in RMB. The euro, meanwhile, is rarely offered, and when it is, the price includes a precautionary margin: the factory that invoices in euros carries the exchange risk and passes on the cost.

The invoice currency decides which currency pair you carry. Invoice in dollars: your risk plays out on EUR/USD. Invoice in yuan: on EUR/CNY. In both cases, the euro value of your cost moves between the order and the payment, an interval running over weeks. The first question, then, is not "which currency is cheaper", but "which pair can I manage".

The renminbi is not a freely convertible currency: capital movements remain controlled by the Chinese authorities. On the onshore market, the central bank publishes a central parity, the fixing, every business day, and the rate can fluctuate within a daily band of plus or minus 2% around that point since 2014. Abroad, the offshore yuan, quoted as CNH, trades freely and occasionally diverges from the onshore rate: two quotes for the same currency.

For a foreign buyer, paying in RMB requires a cross-border transfer in yuan: the factory must be equipped to receive it, which is not the case for all of them, especially small workshops used to the dollar. China built its own cross-border interbank payment network for this, CIPS, launched in 2015. On the French side, nothing exotic: your bank converts your euros into CNY at its own rate, and it is this applied rate, not the Chinese fixing, that determines what your invoice actually costs.

The rate published in the media is a median market rate: nobody sells it to you. Banks and payment institutions apply a margin between this reference rate and yours, on top of which come transfer fees. This margin is the real cost of the exchange: depending on the institution and the channel, it ranges from a fraction of a point to several percent. One point of margin on fifty thousand euros comes to five hundred euros: that order of magnitude is enough to see why the margin is negotiated before the rate.

The reflex is mechanical. Before every transfer, ask for a firm rate, fees included, in writing, and compare it with at least one other channel. Banks with a foreign exchange desk and institutions specialised in currency exchange quote explicitly; the standard bank counter sometimes folds the margin into the displayed rate without breaking it out. On regular flows, the margin is negotiable: it is often the first lever, before any hedging instrument.

Hedging means fixing today the rate for a payment that will leave later. The basic instrument is the forward contract: your bank commits to a rate for a date matched to your supplier's due date. No premium to pay, but a firm commitment: the rate is locked in, good or bad. The currency option gives the right without the obligation, for a premium. These instruments require a business account, a bank that handles foreign exchange and, generally, an identifiable commercial flow.

From what amount? As an order of magnitude: regular purchases running into tens of thousands of euros justify a forward with your bank, since it stabilises each settlement and therefore your cost prices. On a one-off order of a few thousand euros, the instrument costs more than it protects: the conversion margin and the timing of the transfer make the difference. In between, a currency clause in the contract, setting out the reference rate source and the price adjustment rule, protects you without going through a trading desk.

First pitfall: price validity. When the market moves, the factory shortens the validity of its dollar quote, or requotes upward. This behaviour is set out in writing: in the contract, the invoicing currency, the reference rate source and the adjustment rule, with a threshold below which the price does not move. Silence, on the other hand, produces disputes.

Second pitfall: the customs rate. Import duties and VAT are calculated on the customs value, converted into euros at the rate published by the customs authority, updated monthly, not at your bank's rate nor at the rate on the day of your transfer. Two shipments sent a month apart at the same dollar price can therefore be taxed on different euro values.

Third pitfall: the facade RMB price. A price quoted in yuan is only binding if the factory can actually receive a cross-border transfer in RMB and the proforma states it. Without that, the invoice reverts to dollars when it is time to pay, and the expected gain evaporates. The currency is checked on the document, then on the currency field of the transfer order.

Our brokerage and sourcing house treats currency as a negotiation clause, on the same footing as price or payment terms. We have the invoicing currency written into the proforma then the contract, we ask for the adjustment rule when the factory wants a short validity period, and our Chinese-speaking team in Guangzhou checks on site, in the factory's language, that the announced RMB settlement is actually collectible. We do not speak Chinese ourselves: that is the role of this team, on the ground.

In most cases, you pay no fees: you open a file, we negotiate the goods for you, and we take a commission on their ex-factory value. The exchange question is part of this process, from supplier verification to payment follow-up, with a single point of contact in Paris and in Guangzhou.