Many importers are dying to know whether they are dealing with a factory or trading company when importing certain products from China. Because almost every Chinese supplier declare that they are factories. Including suppliers on some B2B platform like Amazon, Alibaba, Made in China and so on, although they are actually trading companies.
There are lots of articles teach how to validate a company is not a trader, but as an engineer worked more than 10 years, I must tell you these articles suggested didn’t make any sense in reality.
In this article, I’ll give you “3+6” ultimate ways to verify a Chinese company is not a trader.
What means “3+6”?
“3” represent the most common ways that most purchasers adopted, but it is not effective. “6” is the ultimate ways you must know to verify a China factory.
Part I: 3 methods about verify China supplier Often mentioned.
1. Check the Capital of Supplier’s Registered
Some articles of the blog said: checking supplier’s registered capital to verify if they are a factory. If it registered with large capital, then it’s a factory in China, otherwise, it’s a trading company. But this is completely wrong. If your supplier is a small-scale factory, its registered capital will be likely less than a trading company. And the registered capital of large-scale trading company can be very large, near my company, there are many completely trading company registered capital more than 10 million, which ask a loan company to help him, they only need hundreds of dollars to pay the loan company, after 2 days, then they can draw back the money.
The real registered fund in China by Law
No matter you register a company or a factory in China, your registered capital is usually more than CNY 500,000. I have to say: China new law encourage people to found company without capital verification, that is to say, many factories also do not need money to verify their capacity. But it doesn’t mean you must have ￥500,000 in your hand at that time.
From the above, you can see if you still use company registered capital to verify if they are a China factory or trader is totally wrong, because, according to new Chinese law, no matter they are a factory or trader there do not capital limitation
2. Ask for free Samples, Check the Address of location.
Some others recommend the importers to ask for samples before placing the order to the suppliers. Then you can check the supplier’s office address and quality. If the office location is the same place as the registered address on the business license, the supplier will be factory; otherwise, it’s a trader.
But this way is not applicable in China, or even many other countries also are not good for this, because it’s quite normal that a factory’s office location is not the same as the license described. Many middle and small factories’ workshops are rented, so they may change to rent another place after a few years, but they do not need to keep an update of the registered address. And some factories’ workshop and office are divided into different places, even different cities.
Why they divided their workshop into different places?
Some of the industries zones were managed by the government, they have the task of solving the surplus labor, so they have to give some advantages of the rent fees
Part II: 6 ways to Verify a China supplier are factories, not a trading company.
1.How to get information from their website?
From about us, some people will say they are a trader, I am sure they are a trading company. If they are a factory they do not need to say they are a trader. but if they declare they are a factory, you should continue to verify if they are said are true?
1.1. Check the product catalog
A factory usually is specialized in one or several kinds of products, if there are lots of products in your supplier’s catalog, then it’s more likely to be a trading company.
For examples: if you find a website page said, they can do metal stamping parts, automobile stamping parts, sheet metal stamping parts, sheet metal components, more even ridiculous is they said all are made by their own factory, then you can 100% assure they are a pure trader, because no one factory can do so many completely different manufacturing methods
1.2. Supplier declare all parts made in their own house
If the website said they have many kinds of products, and openly said some parts made in their own factory, and some parts were outsourced, I think this supplier is reliable.
2. Check the Business License
Checking supplier’s business license, which the license has a “Business Scope” (经营范围), this is very important, it is how the company have the right to manufacture(in Law). This is the easiest and most direct way which your supplier cannot counterfeit. A factory’s business scope must include words like “manufacture or produce” (生产，加工，制造), which a pure trading company’s business scope won’t have, but you should know many factories also is a trading company, it helps you exclude the pure trader
Send a supplier’s business license to a reliable friend who knows Chinese well for a check, or you can go to Elance to find a freelancer for translation, which only costs several dollars.
Business Scope is the most important part when checking a supplier’s business license
3. Check the Value Added Tax (VAT) Invoice
This is the best way to verify suppliers. Chinese government require all kinds of exporting products must issue 13% VAT invoice, and it only can be issued by a factory, no matter this kind of part can be drawback the tax
PS: If the tax can be refunded from the government, according to Chinese law it is also refunded after collection, please pay attention some people will use this as an excuse refuse to provide a real VAT invoice
So there are two ways to verify if they are a factory:
3.1 Tell the supplier that you have a partner in China who can help you apply for export drawback, so ask for issuing a 17% VAT invoice. If the supplier refuses or hesitates to reply to you, they probably are a pure trading company.
3.2 The easiest way to ask the China supplier to give you a real VAT invoice which was issued by their own company, and check the invoicing company if it is same with their license show, but you also should pay attention to the VAT was made by PS?
Sample of SIPX’ Tax (VAT) Invoice
From the above checking, I think you can confirm if they are a Chinese factory, but you should know some china factories they are also a trading company, and they also outsource some other parts for exporting, if you interested in how to distinguish what product was made by their own factory and what parts were outsourced, please continue to read the following steps
4. Send an email to ask the supplier directly.
4.1: If you found the factory is also a trading company, please send email to ask their sales manager to ask directly, why it is their sales manager? Because some of the sales do not know all scope of their product catalog, so sometimes they will “make irresponsible remarks”
4.2: How to write an email to ask China supplier tell you the truth
Your email should clearly tell them they are a factory, but they also outsource some products. and ask him to tell you directly what products were made in their own factory, but you can not tell them what you are most interesting, this is very important, otherwise, they will tell you your most interesting products were made in their own factory
5. Check the ISO 9001 Certification – the ISO9001 certification just for your reference.
Reasons: some trading companies also have this certification, and all of them are only specialized in one product category, I know several this type of trading companies, and I have to work with these trading company almost no much difference from the factory, even on price.
Hegao Sipx quality control
6. Check your China Supplier address?
Check where the supplier is located in China is not important, because almost every province have metal stamping parts, progressive stamping, Die casting parts, forging factories in China, now I have other factors about the location
Labor cost: Generally speaking west cities in China labor cost cheaper than coastal cities, Like Shenzhen, Guangzhou, Shanghai, Ningbo
West cities: Chongqing, Chengdu, Wuhan
Sea-shipment cost: coastal cities(East cities) cheaper than west cities in China
Railway-shipment cost to Europe(only): west cities cheaper than coastal cities in China
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