When a first-time importer asks me for advice, one of the first things I tell him/her is “you can’t send the container back to your China factory, and re-working the goods in your country would be expensive, so make sure product quality is confirmed before shipment”.

The CSIC just published an insightful article about the topic of returning a product back to China.

It states that “the system in China is designed to make it very hard to get defective goods into China, even if the overseas buyer has clear paper trail and full support of the original supplier”. This is exactly what I heard from several sources: don’t count on it.

An importer who discovers defective products in his warehouse has already paid the import duties. If he wants to send the goods to China, he will have to pay for international freight and for the duties to export into China. And then, again the same story, to get the goods in his country. It takes a lot of time and a lot of money.

BUT there are other options, as outlined in the CSIC’s article:

a) send the defects back, supplier gives you credit on future order and they eat the cost to return, rework and replace. Be very careful that this supplier will be around to complete the transaction and that you have a lot of leverage and history together. I have seen more than a few suppliers simply pass on doing business with the client ever again rather than do what is right and replace the goods.

Good luck with that… Very unlikely in 98% of cases. Chinese suppliers are very focused on their short-term bottom line, and they never want to lose money on one transaction.

b) rework the goods in the USA with local technicians or ones sent over from China.

That’s what happens most often (if the goods can be reworked and if it makes more sense than just sorting out the bad products or throwing everything away). Some companies are specialized in repairing/relabeling/repackaging defective products from China!

c) send the goods to HK and have the re-work take place there. Labor and warehouse is much more than in PRC, but still much less than USA. Most important, HK is more flexible with the duties.

This one probably seldom happens, but it is good to keep it in mind.

d) once the goods are in HK, you could also arrange for a “gray shipment” to PRC for re-work. Don’t try to arrange it under your name, but there are 3rd parties who will leverage their relationships with the border officials to bring your product into China at a reduced tax rate. This is very much a “gray area” practice, but very common none the less. Often, the 3rd party will reclassify your goods under an HS code that is not taxed at importation. The reason I suggest you ship to HK first, is that it is very hard for these 3rd parties to arrange “special channel” for international freight, but the HK-Shenzhen boarder is much more porous and things are flexible as trucks cross back and forth overland. As this is not black and white, your supplier may not have experience either, especially if they are not based in S. China near HK. So if you do explore this gray channel, make sure you deal with a firm that does have experience and structure your payments so that they get paid AFTER the delivery is made.

A bit risky and not really legal, but good to know…

e) if all else fails and your supplier isn’t stepping up to the plate to fix the problems or saying “they can’t afford to fix it”, know that I have had many suppliers “suddenly” come up with the cash once a lawsuit was pending.

Right. But it takes a solid OEM contract, drafted by a lawyer who knows the Chinese system and chopped by the supplier.

Another preventive action is to inspect quality during production and again before shipment. Oh, and the best is to work with a reliable manufacturer, of course.

What do you think?