8 alarming secrets about the true identity of your Chinese suppliers and trading Companies exposed!
8 Proven authentic and guaranteed Ways to verify Chinese suppliers and Trading companies that you MUST know to avoid SCAMMERS and save TONS of TIME and MONEY! (#4 will blow your mind!)
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Navigating the complexities of Chinese suppliers and trading companies can be tricky. Unfortunately, I’ve encountered firsthand some of the deception within the industry.
To help you avoid similar pitfalls, I want to share my insights.
Manufacturing in China presents numerous advantages but comes with certain risks. Finding a trustworthy manufacturer is challenging, as some scammers pose as legitimate factories just to take your money and disappear.
How then do you verify that the Chinese Suppliers you’re dealing with are factories and not trading companies or worse scammers?
Importers often confuse Chinese suppliers with trading companies. When sourcing products, they prefer factories over middlemen because direct dealings lead to lower prices, higher profits, and shorter lead times. Working with a factory also allows for product improvements, fixes, and new model development, helping businesses stay competitive.
However, many Chinese suppliers—especially on Alibaba—claim to be factories, but in reality, they operate as trading companies or, worse, scammers.
If you want to avoid this pitfall and enjoy all that Chinese manufacturing has to offer, here’s what you should do
1. Check the Business License
Request your supplier to send you his business license.
The most important place to look is at the “Business Scope” in Chinese it is written:经营范围. This is the easiest and most direct way that your provider can not fake. if you cannot read Chinese, Find a friend to translate it or look for a freelance translator online such as Elance.
The business scope can tell you very clearly what the company was set up to do. A factories business scope will usually include words such as “manufacturer, producer, or processor” in Chinese it is written: 制造, 生产, 加工. Usually, a trading company will have other descriptions
A sample of Business license
2. Check Supplier’s MOQ
Factories are often willing to manufacture big orders. Why? It takes the same resources like time and energy to make big orders and small orders. If they do small orders, the factory will lose money. So, they have the minimum order requirement (MOQ) Requirements. Therefore, factories often have higher MOQ than that of the trading company.
If you’re dealing with the factory, you will realize that the minimum order requirement is not negotiable. The trading company is, however, willing to accept a negotiation. You can visit Alibaba to have an idea about MOQs.
For example, you need a supplier to supply you with 10,000 sqm floor tiles; you can test the supplier to see if he is willing to sell 300 sqm tiles for a start and tell him you will make a bigger order in the future if the quality is good. If it is a factory, the expected reply is no since its MOQ will not be less than 3,000 sqm.
But a trading company can accept small orders. Therefore, the MOQ is considered as one of the main elements when conducting supplier verification
3. Go through the products’ catalog
“A factory typically specializes in one type of product or various variations. If your supplier’s catalog lists many different product types, you’re likely dealing with a trading company.
For example, a gypsum board factory will only offer gypsum boards in its catalog, but with multiple varieties—such as fireproof, waterproof, or moisture-proof options.
However, some gypsum board suppliers also list PVC wall panels or floor tiles, even though they don’t manufacture these themselves. Instead, they source them from smaller factories.
These suppliers charge higher prices for PVC wall panels and floor tiles compared to trading companies. This indicates they focus on gypsum board production, while others likely operate as trading companies.
4. Check the Value Added Tax (VAT) Invoice
This is probably the best mean to check if your supplier is a trading company or a factory. How? Well, the Chinese government offers a refund for many types of exports to boost manufacturing and export activity, and to be able to enjoy the refunds, you need a 17% VAT invoice. The catch is only factories in China can issue 17% VAT invoice.
You can then request your supplier to issue you a 17% VAT invoice arguing that you want to apply for export drawback. If the supplier refuses or hesitates to reply to you, he is likely to be a trading company or a very small-scale factory or even worse a scammer.
But in the event he does issue the VAT invoice, make sure you ask for a clear picture of the invoice, and then check carefully the company name on it. Make sure the name on the invoice matches the name of the supplier on his business license, if yes, then it must be a factory.
A sample of VAT Invoice
5. Check the Factory Auditing Reports
You can ask the supplier if they have supplied products for big companies like Walmart, and require them to send you the factory auditing report.
If they refuse or hesitate, then they probably are trading companies. If they send you the factory auditing report, you need to check the company name on the report. If it’s the same name as the one on their Business License, they must be a factory.
6. Ask for a Copy of the ISO-9001 Certification
Trading companies generally do not need ISO 9001 Certification. By asking a copy of this document, you must be aware that they are easy to fake. So you should be prepared to verify the validity of the document. However, most companies who have this certification are factories.
It is also worth to point out that some trading companies can have this certification. The good thing is they are only specialized in one product category and they have a strong relationship with their factories. Working with them will be that much different than if you are working with factories, even on price.
7. Check the Supplier’s Location
in China, products are manufactured in unique and specific industrial areas. The reason for this is that those industrial areas have a complete supply chain for all the parts needed to manufacture the product. Producing the same product in any other cities will be more complicated and will incur higher cost.
For example, Foshan in China is the city for home furniture, if your home furniture’s supplier is not located in Foshan, he is likely to be a trading company. Another example is Electronic products. Most electronic products are produced mainly in Guangdong province, especially in Shenzhen.
Because this city has the complete supply chain for all electronic components, such as the PCB, the screens, wires…etc. The factory only needs to design the carcass and packaging, then assemble all the pieces together. Producing electronic products in other cities will be more complicated and more expensive than in Shenzhen or other Guangdong cities, so the factories are not likely to be located elsewhere.
You also need to verify the actual location of a factory using google map or Baidu map, factories are mostly located in specific industrial zones in the outskirt of cities, however, if the supplier address is located in the city center or main street of a big city like Guangzhou, Shanghai or Shenzhen, then it’s most likely a trading company, not a factory.
8. Ask a Technical Question
Ask your supplier a relevant technical question about your product (e.g., machining limits or measurement tools). If they don’t respond quickly, they are likely not the actual manufacturer. By following these steps, you can minimize risks and ensure you’re working with a genuine Chinese manufacturer rather than a middleman or scammer. Have you come across any suspicious suppliers recently?
Some suppliers exploit inexperienced importers by using deceptive practices designed to maximize profit.
CONCLUSION:
There are many ways to verify a Chinese supplier. But there is one that really works very well. This is to visit your supplier directly in China.
If our goal is to start in China with small businesses, or you simply there is no budget to conduct a business trip to China, we highly recommend you to hire a reliable and professional agent in China such as Nexus Group EPC or a 3rd party inspection company
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