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The Remitsy Blog
Oliver Lompart
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Oliver Lompart

    Will China Come Out Swinging in the Year of the Monkey?

    remitsy payments to China

    China 2015 Flashback and 2016 Predictions

    Chinese people are now back to the work from a week full of celebrations of the new Year of the Monkey.

    Recently all eyes are on China. Just a few weeks ago it was made official — the Chinese economy grew by 6.9%, making it the slowest growth in the last 25 years. Doubts are forming about China’s future.

    Some economists say we are heading into the next world crisis, fuelled by market turmoil in China and low oil prices.

    But, before we dive into predictions for the “monkey” year, let’s have a look at how the “goat” did.

    2015: China as a Global Player

    For the first time, China took an active role in the United Nations (UN). Xi’s speech at the UN about China’s intentions in international affairs has sent a promising message. Then, the climate conference in Paris confirmed Chinese ambitions to fight pollution and become a “green” leader.

    Xi Jinping having speech at UN. Photo: ChinaDaily

    President Xi Jinping having a speech at UN. Photo: ChinaDaily

    Yuan joining exclusive club

    Upgrading the Chinese currency to reserve currency status by the International Monetary Fund was another milestone for China. The Chinese yuan has joined an exclusive club of the world’s most important currencies. This was an important step towards positioning the yuan as a competitor to the US Dollar, but the impact on short-term demand for the yuan is questionable.

    China goes global

    President Xi Jinping travelled a lot in 2015. One of the most important visits of the past year was to the United States. Relations between China and USA have cooled in the recent years so the meeting was not going to be an easy one. The list of discussed topics included thorny issues like cyber security and military relations.

    During Xi’s visit to the UK, both sides focused on the positives of the relationship. British support for the Chinese role as a global superpower had been indicated earlier in the year when the UK became the first major Western country to apply to join the Chinese-led Asian Infrastructure Bank.

    Xi was given a red carpet welcome, and lots of proclamations were made about the new “golden era” in China-UK relations. In the Chinese state media the trip was reported for several weeks, announcing one big deal after another.

    Chinese president was travelling a lot in 2015. Photo: ChinaDaily

    But “Big Daddy Xi” didn’t stop there. The president was trying to repair relations with the neighbours, notably with the Philippines and Vietnam. In Pakistan, he negotiated some major economic projects and he also found time for a groundbreaking meeting with Ma Ying-jeou in Singapore in 2015.

    China Scares the Markets

    2015 saw China continuing with its reforms, opening up further to the world. We saw an indication of a more market-based pricing mechanism for the yuan on 11th of August. In a move which many see as signalling intent, we saw the biggest one-off devaluation of yuan in 20 years. Chinese currency weakened by 2% against US dollar.

    Most of the mainstream media accused China of manipulating its currency to boost exports, but that is misleading. Opening up the currency was in line with China’s plan to internationalize the yuan. Unfortunately, reform was met with many people selling the Chinese currency when they had the chance. That led to the massive capital outflows.

    Supply exceeded demand and the Chinese yuan depreciated. In the following days, China rushed to stop it by having the People’s Bank of China buy the yuan wholesale to prevent further depreciation. It sold around 200 billion USD from its foreign exchange reserves to calm the markets.

    Moving from a very strict domestic monetary policy to a more flexible international one was not going to be easy. The Year of the Goat certainly saw some growing pains. But in the long-term, the yuan will be more freely traded and things will settle down. And if Beijing gets its way, it may even begin to challenge the USD as the primary currency for global trade.

    From One-Child to Two-Child Policy

    All couples have been given green-light to have two children since late 2015. Famous one-child policy, introduced in the late 1970s, is now officially over. The change of policy was necessary. China needs to balance population development with the challenge of an ageing population and male — female imbalance.

    Lucky Money

    On Chinese New Year’s Eve, Chinese families get together to celebrate Chinese New Year. The celebrations look similar to the New Year celebrations in the West. People eat, drink and watch New Year TV programs together.

    One key difference though is Lucky Money. During Chinese New Year’s Eve, people gift money to each other in red envelopes (红包). Each envelope contains a certain amount of money (the amount depending on how generous the giver is feeling!). The red colour of the envelope is associated with luck and good fortune in China.

    Nowadays, the physical red envelope is not the only way to surprise friends and family.

    send money to china hongbao red envelope Chinese New Year-Remitsy (2)

    Red Envelope with “lucky” new 100 RMB banknotes | Remitsy’s picture

    Popular Chinese message app WeChat now has an option for sending Red Envelopes. It even has a cool function that allows you to randomise the amount received for each person in a group. During the Chinese New Year it is not uncommon to see people staring at their smartphones as they wait impatiently to snap up Red Envelopes being sent on their various groups!

    Innovation in consumer payments is present even during this significant day of Chinese families.

    But not all numbers are equal. For example, many Westerners are superstitious about the number 13. Similarly in China, people are sensitive about number 4 (sì 四), because it sounds like the word for death (sǐ 死). As a result, it’s better to avoid an amount with a four in it.

    Turbulent Year of the Monkey Ahead

    The beginning of 2016 suggested that this year won’t be an easy one for China. After double-digit losses in the first week of the Chinese stock market of 2016, the following week experienced further steep sell-offs. Over the first month of trading, shares in Shanghai fell about 22% and Shenzhen stock market was down by around 24%.

    It’s not all doom and gloom over here, though. China seems to have conviction in its intention to internationalize the yuan, and we can expect yet more positive monetary reforms this year. The ambitious One Belt One Road project is gathering steam too. This will likely lead to some very exciting opportunities for European businesses that wish to cash-in on China’s infrastructure projects in Central and South-East Asia.

    Most importantly, what does Chinese Horoscope say about Year of Monkey?

    Red Fire Monkey. Photo: Monkeyabroad.com

    The Monkey is composed of the metal and water elements. Metal is connected to gold (meaning prosperity) and to wind (implying things will be changing quickly). Water symbolises wisdom and danger.

    The monkey is smart, but also wild and naughty. The Chinese New year will be challenging, and outsmarting the monkey is not easy, but it’s definitely possible.

    We wish everybody a happy Chinese New Year! May Year of the Monkey be a lucky one for you!

    新年快乐!xīn nían kùai lè




    Oliver LompartOliver Lompart

    The Truth About International Payments

    How much do your international payments cost? You’d be surprised!

    According to research from Goldman Sachs, the average cost of an international payment (and profit of banks on it) is 6%. And that’s not the only cost to be considered. Add in the time spent preparing the transaction, time spent waiting for the payment to arrive and the potential risks involved.

    Payments are mysterious

    International payments are big business for banks and others. Paying suppliers can be troublesome

    Paying a supplier, outsourcing services abroad, or expanding to the market in another country? In today’s connected world, these transactions are now done on daily basis. But sending and receiving money internationally can be a huge burden for your company.

    The Business of Business Payments

    International business payments are different from other transfers of money abroad. Aside from the extra paperwork involved, international business payments have a direct effect on the profits of you and your business partner. And they also impact the rest of the business processes: production cannot start; goods cannot be loaded; services cannot be rendered… until the money arrives.

    I’m Only Paying the Processing Fee, Right?

    There are three costs for businesses when sending money abroad. Processing fees, hidden exchange fees and time costs.

    The processing fee is a visible cost for the company. It is usually a fixed amount per payment, a percentage of the amount transferred, or a combination of both. The fee varies based on where your supplier is located, what currency you choose and how fast you need it.

    Let’s look at an example. Barclays’s fees for an international payment start at £25 (outside of SEPA) (2). But then there are also fees on the supplier’s side, which are much less clear and often not specified. For example, in the UK if you were to receive money from abroad in a different currency, Barclays would charge you an additional £6.

    International payments. Exchange rate fee

    No fees! Zero percent commission! Sounds like you are saving a lot of money, doesn’t it?

    Do you also wonder how it is possible that the exchange rate you look up on the internet is never the same as the one offered by your bank? That’s the second way of charging you for the international money transfer.

    Why don’t banks use the official, market-determined exchange rate? Because banks are smart. Internally they use it, but for customers, they add a percent here and there. They know that most people are happy to overlook these charges or don’t even know about them. Out of sight, out of mind — banks are taking advantage of our unawareness.

    If you want to use real exchange rate, look for the mid-market rate. You can find this through websites such as XE and Oanda. The mid-market rate is the true exchange rate — unlike the adjusted exchange rates quoted by banks and brokers.

    Difference between exchange rate used by HSBC and true mid-market rate available at XE.com

    Difference between exchange rate used by HSBC and true mid-market rate available at XE.com

    Let’s look at HSBC and their exchange rate. Imagine business owner in Hong Kong who needs to pay his business partner in UK 10,000 GBP. On 17th December 2015, he would have to pay 11.6242 HKD for every GBP. It is worth mentioning that this is “better” business exchange rate, which is only available for online transactions with minimum transaction amount of USD 10,000 or its equivalent (source). At the same time, real mid-market exchange rate from XE.com was 11.5919 HKD per GBP. With HSBC exchange rate business owner from Hong Kong would have to pay 116,242 HKD (and other bank fees as well). If HSBC was using real mid-market exchange rate, you would only have to pay 115,919 HKD. This is roughly 250 HKD (20 GBP) difference.

    Time is money. The third cost of your international payment is time. Not only your time battling with extensive bank paperwork, but also the transfer time, when the payment is on its way to your business partner. During this time, these funds are frozen, so they can’t be used by you nor the receiver.

    Production and shipping may be delayed if funds do not arrive on time (things get even worse if the payment gets lost in the system!). This can lead to upset customers and has serious consequences for either party’s cashflow. Any business owner knows how stressful it can be to wait for money to arrive.

    Innovation in International Payments

    In the past few decades technology has changed our lives and made many things easier. But international business payments still remain largely untouched by innovation. We are still sending money to our suppliers mostly “the old way”, using the system that was developed in 1971 before the internet. That old way is expensive.

    And why would banks want to change? International money transfers are good business for them. The market is valued at more than half a trillion dollars and is expected to grow further. Goldman Sachs estimates that the banking industry’s total revenue from international money transfers is around 30bn USD. This is the value created by businesses like yours, taken by the banks — just for moving your money from A to B.

    However, personal international money transfers are seeing more innovation. Companies like Transferwise and Xoom are now common choices and are seeing increasingly fast adoption. Why?

    Imagine an individual working abroad, who is sending money every month to his wife and child at home. This person has strong motivation to save on his international payment costs so that his family can buy more things. By using Transferwise instead of a bank, he saves up to 90% on fees. And because they use the mid-market rate he knows exactly how much it cost.

    On the other hand, businesses often don’t even think about doing things differently. If you have always sent money abroad in the same way, you may not be aware there are now other, better ways of doing it. Don’t businesses also need to look for savings?

    Money Saved is Money Earned

    We spend a lot of time trying to increase our revenues and profits. We come up with sophisticated sales strategies, marketing campaigns and company’s processes to achieve it. Each expense is meticulously accounted for. And yet when you ask a business owner or accountant how much their payments are costing, more often than not they don’t know.

    How much does it take for a business to add 2–3% to its margins? Maybe just paying more attention and switching your international payment method can add that kind of savings and more.

    After all, a penny saved is a penny earned.




    Oliver LompartOliver Lompart