13 November 2020
“Don’t worry, the cheque is in the mail…”, many years ago, one of my mentors explained to me that this expression is a classic bluff in business life.
In fact, it might have a Chinese equivalent, “we made the payment, but it is being blocked by the administration because of exchange control restrictions”.
If you work with China, you have obviously heard that excuse before, and probably even more lately. The question is whether it is credible. And the answer is: it depends.
It depends, on the type of payment you expect to receive from China.
Explanation: There is a foreign exchange control system in China placed under the supervision of an administration known as “SAFE”. The role of SAFE is to oversee all transactions involving a foreign exchange transaction, whether it is from the Chinese currency RMB to a foreign currency such as Euro or the other way around.
The transactions supervised by SAFE are classified into 2 main categories:
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Capital account transactions, i.e. investments. Restrictions on these transactions are quite strict. For example, if you are a start-up based in the UK and have just raised funds from a Chinese investor, payment is delayed and difficulties with exchange controls are mentioned – such an excuse is quite credible.
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Current account transactions, i.e. commercial transactions in the normal course of business. This could be the example of payments by a Chinese company to a Swedish company for the purchase of equipment or materials. These current account transactions are much less controlled. It is generally sufficient for the Chinese company wishing to make the payment to go to its bank and present the documentation supporting the transaction (contract, purchase order, etc.). In 99% of cases, the bank acting on delegation from SAFE will process the transaction immediately.
In conclusion, if your company is waiting for a payment from China in relation to a normal business transaction – the exchange control argument to explain any delay is not credible.
The question then is what you are going to do when facing this excuse.
One option is to consider litigation. Before doing so, it is essential to assess your case carefully: to which law is the contract subject? what is the dispute resolution method? how much will it cost? how credible are your warnings?
Another option is to go in the direction of compromise by giving more time to your debtor, while maintaining constant pressure to collect payment.
Difficult times call for difficult decisions.
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