Readers often ask me questions about a Chinese supplier. They send me a company name and an associated address in China. When I see the name, I often say “this looks like a Hong Kong company name”.
The fact is, many Chinese exporters conduct their business through a Hong Kong company. Most, but not all, of them are middlemen.
And sometimes they show a HK company name, ask for payment in HK, but show a Chinese address that is not the official “place of business” of the HK company. It is not a clear sign of dishonesty, though.
Understandably, many purchasers are confused. How to make sure they are not a scammer? Similarly, if they pretend to be a manufacturer, do they really own a factory?
Less public information
In background check in China, I gave 4 tips to detect unscrupulous suppliers. They are also applicable to check Hong Kong companies’ background.
I also advised to pay and get financial records of the target company (tips 5 and 6) — unfortunately, this is not possible in Hong Kong.
Accountants and lawyers can run a company search that will show the names of directors and shareholders, the company address, and the company structure. Or you can go and search the ICRIS database. That’s it!
Paradoxically, Hong Kong’s open system keeps more information hidden than Mainland China. And, according to Reuters, the range of publicly available information might be reduced soon:
Hong Kong has proposed a new law that would allow company directors to keep their personal details secret, after a series of media reports revealed information about the wealth and assets of some senior Chinese officials.
Under the planned rule, directors could apply to have their residential addresses and full identity card numbers blocked from public view, according to a document submitted to the Legislative Council.
Mining of company data has helped news organizations uncover sensitive data on business and political leaders in recent years, which has led to the publication of stories embarrassing to some members of China’s elite.
Background check on the manufacturing plant(s) outside of Hong Kong
If the Hong Kong supplier accepts to disclose the name and address of their factory in the mainland, it is then possible to run a background check on that company… and to see if the HK company is its shareholder.
In this case, tips 5 and 6 of that article are fully applicable.
What do you think?
Renaud,
In my experience, when a HK company is used for export by a PRC manufacturer, the decision center remains in PRC and most people you deal with are also in PRC (sales, technical people, …). Only some shipping people and also the person invoicing may be in HK. Do you have the same experience?
If the HK company seems to call the shots, it is either a real HK operations with factory in the mainland or a trader. And it seems to me that if the HK company does not want to disclose the name of its factory in China and, for instance, send a copy of their ISO certification (where the address is written), then the chances that it is a trader/middle man are pretty high. No legitimate operations will refuse to disclose where their factory are located unless they do not control them.
Etienne,
That’s all very true.
Asking for the factory name, or for copies of the factory’s certificates, is a very good idea to discriminate against traders pretending to be manufacturers. Thanks for adding this piece of advice to the article!
I am a furniture designer and i assume i build my products, i own the plans and i can build them on my own place with a few people or if i sell a large number in a deal i can turn to a factory and ask for the production. I say i am a furniture company but i really own a computer, some pens and paper. This because every client thinks the best deal is directly with the factory. They only have the big machines and lowcost jobs. And they will try to steal my models even if they are protected with industrial patent, nowadays factory owners want all the cake, they sell to the public, have factory store….HK looks like a very good place to be comanding business.
Tks