Some quality control firms say to their clients: “You should book an audit on the factories you intend to work with. We’ll check if they have an export license. If they don’t, it is a bad sign because they are not authorized to export their products.”

Well, it is not so simple, as often in China. Factory audits are quite helpful in screening potential suppliers. But the absence of an export license is not such a bad sign. Most small factories don’t have that license, and they have no problem to export.

I remember asking some suppliers why another company name was written on the shipping documents. They explained that they don’t have the export license themselves, so they use an “agent” (notice the very general term) to “do the paperwork”. This agent’s work costs them about 1% of the value of the order.

This is quite common. But is it strictly speaking legal?

At the end of a previous article on freight forwarding, a reader called Callum asked this question in the comments:

A lot of Chinese suppliers do not have export permits. Instead they pay a fee to a third-party company with an export permit and in exchange they are allowed to put that company’s name on the commercial docs. I don’t know much about Chinese law, but I have a feeling this practice could be considered fraud.

To which Sandra Nguyen Thanh, from Karl Gross, responded:

In fact, in order to export products from China a supplier must either have a dedicated export permit (license) of their own or must “outsource” this process to an Import-Export company licensed to export any (non-restricted) product. The Import-Export company would accordingly appear on the export documents for the customs clearance. This is a normal procedure and totally legitimate in China.

Reasons why some suppliers prefer to use an Import-Export companies may be as follows:

1) They pay agent fee but it saves them labor cost and other costs.

2) Import-Export companies may have beneficial know-how about the market and government regulations. They are professional to settle documents and refund matters.

3) Import-Export companies have regular business so they get the tax refund faster from the government.

At the same time, there is another misconception to debunk. Some importers think the Chinese government audits factories and approves only the best ones for export. Wrong! If you are not careful, you might work with a company that is producing for the first time…

For more misconceptions about buying in China, I suggest that you go and read this article.