This Treasurer’s Guide to China Payments provides an overview of the bank payments landscape and the common domestic payment practices and nuances in China.  While many parallels exist between the major payment systems in the U.S. and China, global treasurers should be aware of the differences in payment practices and the payment instruments that are unique to China.  Whether your international treasury operations are centralized or decentralized, knowing how the payment systems operate allows you to better manage your local operations in China and explore ways your entities can extend working capital through available payment techniques.

Payments Initiation Options

Depending on a company's payment volumes and needs, their preference on payment methods may differ as well. Domestic RMB payments in China are generally remitted through the following methods:

Online Banking

Online Banking is a standard option to initiate payments, view bank account information, and access other banking services. Multilingual options may be available, but companies should ascertain this from their bank service provider. However, the available domestic payment transaction details are generally in Chinese, requiring end-users the ability to read or translate Chinese to input or comprehend the full transaction detail.

Branch Banking

Companies may choose to conduct payments through the branch by filling out a payment application at the branch, or issuing bank drafts and commercial drafts, etc. Some banks also offer the ability to initiate transactions through couriering documents to the branch.

Direct Connectivity

Direct connectivity is typically leveraged by companies that have high volume of payments and have the technical ability to connect to the bank that provides this service offering. There is a cost consideration as this initiation method tends to be more costly than other payment channels. Mid- or smaller-sized companies may opt not to use Direct Connectivity given the technical complexity and costs.

Note: Cross-Border Payments Considerations

Unlike domestic payments, cross-border payments in China generally require supporting documentation to demonstrate the veracity of the payment. The supporting documentation requirement differs depending on the type of payments made, such as if it’s a capital transaction, trade transaction, dividend, etc.

As cross-border payments require verification of supporting documents by the remitting banks prior to processing, these payments are manually processed and takes longer to process compared to domestic payments. Supporting documentation are generally submitted to the remitting bank either at the branch, or through other means such as courier.

In lieu of branch or courier submission of documents, electronic submission of supporting documentation such as via Online Banking is becoming more commonplace, so further advancements may be coming for these payments in the near future.

Common Payment Channels & Instruments in China

Electronic Payments

The China National Advanced Payment Systems (CNAPS) 中国人民银行现代化支付系统 is the primary domestic electronic payment system in China. Unlike the separation of ACH and Wire payment systems in the U.S., CNAPS encompasses both ACH-type (low-value) payments and Wire-type (Real Time Gross Settlement “RTGS”) payments. They are designated as HVPS (High Value Payment System) 大额实时支付系统 for RTGS payments, and BEPS (Bulk Electronic Payment System) 小额批量支付系统 for low-value payments.

Also part of CNAPS, Internet Banking Payment System (“IBPS”) 网上支付跨行清算系统 is another channel by which banks that are connected to IBPS may clear and settle low-value payments initiated through Online Banking in real time. Unlike payments made through HVPS or BEPS, the sender of the payment is able to receive the processing result of the payment in real-time. It is also known as Super Online Banking 超级网银.

Local Clearing System 同城清算系统 allows transactions where the payer and payee are in the same city to be processed through this system in lieu of CNAPS. For example, if a payer in Shanghai initiates a payment to a payee who’s also in Shanghai, the payment may be routed through the Local Clearing System instead of CNAPS as the Local Clearing System is available in Shanghai. Not all cities have a Local Clearing System available. It may also be translated into Same-City Clearing System or Same-City Transaction System.

Paper-based Payments

Many paper-based payment instruments exist in China compared to the U.S. Similar to most other markets, the usage of paper instruments is declining in favor of electronic payments, though paper instruments will still remain in the foreseeable future. Treasurers should be familiarized with the following instruments:

  • Checks 支票: can be used to withdraw cash and transfer funds.  
  • Bank Drafts 银行汇票: instrument issued by banks whereby full amount from the company is required for issuance. Bank drafts can be paid to both corporates and individuals.
  • Commercial drafts 商业汇票: future-dated negotiable instrument while providing a trade financing feature. Commercial drafts are signed and issued by corporates only, entrusting the payer to unconditionally pay the payee or the bills holder at sight or a future date (up to 6 months for paper-based draft and 12 months for electronic draft). Individuals cannot issue commercial drafts.
There are two types of commercial drafts:
 
Bank acceptance draft 银行承兑汇票 Commercial drafts accepted by banks for payments.
Commercial acceptance draft 商业承兑汇票 Commercial drafts accepted by non-bank companies for payments. This is not frequently used due to the perceived higher risk of non-banks.

Electronic Commercial Draft System 电子商业汇票系统

The Electronic Commercial Draft System (ECDS) creates an electronic network to accept, record and transmit electronic commercial draft data.  Paper commercial draft registration, inquiry, as well as discounting quote can be processed through ECDS. This increases the visibility as well as providing a way to authenticate the drafts, mitigating much of the operational and fraud risks associated.

For corporates that commonly work with commercial draft payment instruments with their trading partners, leveraging ECDS provides better visibility and effective risk management.

Card Payments

The predominant card payment network in China is UnionPay, compared to multiple card networks within the U.S., such as Visa, MasterCard, American Express, etc.  While cards from non-Chinese card networks can be accepted in China, they are primarily used by overseas travelers to China only, and not widely accepted by all Merchants compared to UnionPay.

Notable Payment Practices

Electronic Payments Selection

In the U.S., it is common practice for electronic payments initiation to be delineated by payment systems. For example, ACH may have one payment method and file format, while wire transfer may have a different method and format, etc. Therefore, companies may utilize separate service modules in Online Banking or create and deliver separate transaction data files to their bank service providers to make ACH and Wire payments. Certainly, payment practices that are less “modular” by payment systems are available, such as PNC’s Payables Advantage services, and increasing adoption of ISO20022 standards.

In contract, the electronic payments practice in China is less concerned about if payments should be made via “HVPS”, “BEPS” or “IBPS”, etc., and instead the criteria for payment is more about how large the payment it (high-value vs low value) and how quickly (urgent vs non-urgent) it should settle with the beneficiary.

Direct Connectivity and File Transmission

Larger corporates can opt to have direct connectivity with the bank (银企直联), and different connectivity methods exist. Mid-sized companies generally would not opt for direct connectivity due to the complexity and technology requirement, and would leverage online banking for payment initiation.

File transmission of data containing payment information is a possible method of payment initiation. Alternatively, some banks may allow a “direct interface” to the bank, where the bank can then receive payment information real time from the company. The company designates how the payment would be paid based on the amount and the urgency of the payment. 

The file format could differ also depending on the company’s ERP system. Therefore, there is not a unified payment format for direct connectivity or file transmission.

Branch Banking and Courier

For companies with small operations in China and minimal payments volume, conducting payments via branch banking and courier may be sufficient in lieu of Online Banking.  Depending on the bank, processes are available for companies to courier payment instruction and/or credit vouchers 贷记凭证 (a type of paper-based instrument for same-city payment) to the bank, or courier paper-based payment instruments such as checks to the payee.

This would be equivalent to a small business in the U.S. where the operations are minimal and payments are conducted exclusively through checks or the branch.

Beneficiary Data Requirement:

When remitting payments, there are for 4 data points that must match for a payment to settle to a beneficiary account:

  • Beneficiary Bank Branch Name
  • Beneficiary Bank Routing Number (CNAPS code)
  • Beneficiary Name
  • Beneficiary Account Number
This is true even for the low-value payment systems such as BEPS and IBPS, and differs from the U.S.-ACH convention, where ACH does not require the name to match and only requires the beneficiary account and ABA to post the transaction per UCC 4A regulations. This makes accurately attaching full beneficiary information to the payments critical for payments in China.
 

Key Payment Similarities

 
Many parallels exist between the major payment systems in the U.S. and China. For global treasurers whose company operates in both countries, this should provide some familiarity.
  • From electronic payments standpoint, China’s HVPS is comparable to U.S. Fedwire system for RTGS payments, while BEPS is comparable to U.S. ACH for low-value/non-urgent net settlement system.
  • Checks are used in both China and U.S. for B2B payments, and both countries have check image clearing systems, though the adoption of electronic check image clearing in China appears to be less widespread vs. the U.S. based on payment systems volume.
  • The UnionPay card payment network is a mature card payment network in China, comparable to Visa, MasterCard, American Express, etc. in other markets.
     
Main Payment Systems U.S. China
High Value Payment Systems FedWire (RTGS) HVPS (RTGS)
Low Value Payment System

ACH (Bulk Net Settlement System)

RTP (Real Time Payment)

BEPS (Bulk Real-time Netting, Same-Day Settlement)

IBPS (Real Time Interbank Transfers)

Check Imaging Federal Reserve Check Imaging System (CIS)
Card Network Visa, MasterCard, American Express, etc. UnionPay
Commercial Drafts N/A ECDS

Key Payment Differences

Just as there are many similarities, many differences exist between the payment systems and practices that Treasurers should be aware of:

  • Card Payments: Card payments from a corporate’s context are generally used for office supply, incidental purchases, employee Travel & Entertainment, etc.  B2B vendor payments via Purchasing Card, prominent in the U.S. and other markets, is not a market practice in China.
  • Paper Instruments: Paper instruments such as bank drafts, commercial drafts, etc. are used extensively for B2B payments in China in addition to checks. In the U.S., there is no equivalent instrument to commercial drafts, and checks would be much more common for B2B payments instead of bank drafts.
  • Online Banking Payments: China has a unique payment system called IBPS that is dedicated for payments initiated via Online Banking. In addition to payments, IBPS provides interbank account inquiry functionality for individuals and corporates who have multiple accounts at different banks and would like to view their account information on one online banking platform. Note that IBPS is not available at all banks.
  • Debit Transactions: Corporates in China cannot initiate debits directly via Online Banking or Data Transmission unlike in the U.S. Instead, it must be done through “entrusted collections,” where banks would first verify that an agreement is in place between the parties, then the funds are collected through bank channels for settlement. Electronic debits are allowed for consumer utility payments otherwise. 

Ready to Help 

If you would like additional details or discussions regarding the information covered in this Guide, please contact your Treasury Management Officer or International Advisor.