How to Verify Chinese Company and Ways to Verify Chinese Supplier is a Factory, not Trading Company

 

Understanding who you are potentially cooperating with is critical to a successful relationship with your vendors and factories. Many companies who buy from China often want to buy directly from a factory but don’t know how to decipher how to know whether their partner is actually a factory or a trading company. Below we have listed a few ways we use to know how to verify a Chinese company.

1. Check the Business License

This method of verifying of Chinese company can provide a basic idea of who you are working with. It’s not 100% foolproof but it does give some good information on your prospective partner. In recent years the Chinese government has set up an online system to allow individuals to search for Chinese registered companies online. Find the website here.

All your factory needs to do is to provide you their official name in Chinese and/or their registration number and you can find the following information about them.
• Date of Registration: 成立日期
• Legal Representative: 法定代表人
• Registered Capital: 注册资本
• Company (Registration) Status: 登记状态
• Business Scope: 经营范围

The most important place to look is at the “Business Scope” (经营范围). This 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” (制造, 生产, 加工). Usually a trading company will have other descriptions.

Another spot to check is how long the company has been established. The longer the company has been established the more confidence you can have that your prospective partner is trustworthy. If they have been registered in the past one or two years then it would be prudent to ask a few more questions about the companies operations.

The government website to check Chinese companies is completely in Chinese, however most of the translation can be done well enough through Google Translate. Many inspection companies charge money for these reports, but they are just downloading this information and translating it to English, you can do this yourself!

 

2. Compare your Supplier’s MOQ

A factory’s minimum order quantity (MOQ) in most cases is normally higher when compared to a trading company. When searching for factories on Alibaba or Global Sources look for the companies that have higher MOQ’s listed. These companies are more likely to be a factory. MOQ’s are always negotiable so you shouldn’t worry about the posted MOQ when you are making your first contact with the factory.

Trading companies can always offer lower volumes because they have good relationships with the factories, keep their own inventory, or have other clients that are purchasing the same products. This gives them an advantage to sell smaller quantities of goods to buyers.

Factories have MOQs because they need to manufacture a minimum volume to reach a lower cost per unit manufactured. There is a cost to set up the production line for each production run and raw material to manufacture the finished goods is not easy to buy in small quantities. To achieve a lower MOQ with the factory we recommend to tell the factory that for the first order we would like to do a “sample order”, and if we are happy with the products then we will purchase higher volumes for future orders.

 

3. Check the product offerings

Factories are usually specialized in one or several kinds of similar products. If they have a massive range of products in their catalog then you can be almost certain that they are a trading company.

Factories can often make a variety of similar products in different industries such a plastic molded parts. A company may make plastic molded parts for the toy and consumer appliance industries, but it would be unlikely that they could manufacture made plastic molded parts and electronic devices.

 

4. Check the Factory Auditing Reports

When suppliers tell you that they have supplied multinational companies such as Walmart, GE, Costco, etc. then you can request for them to send you the audit report. When you do receive these reports be sure to look over them carefully. Often times these large companies will audit aspects of the business that does not directly affect the manufacturing of your products. They will make sure there is enough toilets per the amount of people in the building and if the proper safety measures have been taken in the building such as fire escapes. These items of course are very important, but don’t necessarily determine the manufacturing capability of the company.

If the factory refuses or hesitates to provide you this information then they are often a trading company. When they send you an audit report, then you should check to make sure that the company name on the report matches the business license name. If these names match the report, then the company you are speaking with is likely a factory.

 

5. Check the ISO 9001 Certification

Not all factories have an ISO 9001 Certification, but if they do then they are likely a factory. In most cases a trading company would not require this certification. In general, most factories that do spend the time and money to get the certification will be larger more established factories. Even if the factory has this certification, it doesn’t mean that they are following the procedures required as stated in the certification. Still make sure to check the factories manufacturing line to ensure they have the proper procedures in place to make a great product.

Some trading companies do attain this certificate who are usually specialized in one type of product category, and often have very strong business relationships with their factories. I am aware of several trading companies that operate in this way, and offer the same service and price as you would get when directly working with the factory.

 

6. Check Where the Supplier Is Located in China

All products have their own industrial areas in China. Factories that manufacture similar items all manufacture in the same region in China. These manufacturing clusters allow for factories to utilize a shared sub-supply chain to efficiently and competitively manufacture your products. An example of this is Shenzhen has a manufacturing cluster for electronic devices.

Shenzhen has a massive base of electronic suppliers in the city and surrounding areas of Guangdong. All the components required to build one device is typically within a 300km radius. Producing electronic devices in other cities is generally more complicated and higher cost than in Shenzhen, therefore these factories normally establish themselves in regions clustered together.

If you have a supplier from a city other than Shenzhen or Dongguan offering you electronic devices, then there is a higher chance that it is a trading company.

 

My Favorite Tips and Tricks how to verify the Chinese company: 

1. Ask for their address and business name in Chinese, and tell them you will do a Chinese business name registration search to understand what type of company they are, tell them “you will be very disappointed if you find out that they lied to you.”  Usually after this they will tell you the truth.  Ask them directly if they are a factory or a trading company.
2. Tell them you want to and will visit their factory (even if you have no plans to do so).  Usually after you tell them this then they will tell you the truth.
3. Take the Chinese address that they give you and put it into Baidu Maps (www.baidu.com).  Look at street view to see if it is a factory or tall office building.  If it’s a huge office building, then it’s likely you are talking to a trading company.
4. Ask technical questions, if they can’t answer or take a long time to respond then they are very likely a trading company.

 
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