One difficult task to do when sourcing in China is trying to verify the suppliers. For small and medium sized buyers, many of them can’t come to China to visit the supplier on the ground and face to face, so they could either use a third party verification service (such as Chinawhy) or do the verification themselves, using the following simple tips:
1. Check the bank account
If your suppliers have a foreign currency company account to accept your payment, and the bank account is opened in one of the state-run banks (Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of Communications and China Construction Bank), this is positive. As we know, only companies with an import and export license can apply for a foreign currency company account in the state-run banks.
If your supplier doesn’t have an import and export license, they won’t have a foreign currency company account. But they should have an RMB company account in a Chinese bank. As foreign buyers, you can’t send RMB to China, but you could ask your agent in China to send a sample fee to their bank account to test if their RMB company account is real.
2. Be cautious of shell companies
When you see Hong Kong companies on Alibaba, with contact information in Shenzhen or Guangdong province (the address is in Shenzhen and/or the phone number start with 0755, not 852), that is a shell company, be cautious.
3. Secrets in the company name
If you see a company with “trading” or “trade” in its name, then it is obviously a trading company, not a factory.
If a company has “group” in its name, then it is a big corporate. So if you are small buyers, keep away from them.
According to Chinese law, all Chinese companies should add the geographical location in the company name. The geographical location is related with registered capital. In our province (Zhejiang), for registered capital less than 2 million RMB, you can’t use the prefecture-level cities in your name (for example, if a factory is in Ninghai county, Ningbo city, Zhejiang province, China).
Judging by the company name, you can tell the company size (or at least the registered capital):
China Mobile Limited (huge size)
Jiaoguang Group (big corporate)
Zhejiang XXX Co., Ltd. (big company but smaller than group company)
Ningbo XXX Co., Ltd. (decent company)
Ninghai XXX Co., Ltd. (ordinary or small size)