I get a lot of emails asking “how to verify that this company is legitimate?”, and I usually give the following advice.
The first question to ask is “where is the company located?” Many suppliers use a Hong Kong company name and give an address in the mainland (often in Shenzhen). Based on the company name I can often guess where it is based, but that’s not easy for most foreign buyers.
If the company is in HK, the importer can find a lot of tips in Background checks on Hong Kong companies.
If the company is in China, the corresponding article is 6 tips for background checks on Chinese suppliers. But I realized that I didn’t cover all sources of information in this article.
This weekend I read through China Checkup’s past articles, and I found some great resources. Here a few of them.
Chinese Business Licence: An Introduction
Usually, a Chinese supplier has no problem sending a copy of their business license to potential customers. It is not a secret document. It is in Chinese, but shows interesting data. For example:
- When the company was set up (does it correspond to what they told you?)
- Registered address (is it the same as they show in their signature? if not, do they have an explanation?)
- Invested capital (if this is 100,000 rmb, you know you are not dealing directly with a manufacturer.)
How do you know if you’re dealing with a trading company or a manufacturer in China?
This article’s title is a bit misleading. I wish finding out a supplier’s nature were that simple. But one of the fields shown on the business license is the nature of business (trading, manufacturing…). It might be an easy way to spot and disqualify an intermediary. But beware — many manufacturers also engage in 
trading.
Is There a China Company Registration Search Website?
Unfortunately, you won’t find one database containing all Chinese registered businesses. But you can go to the AIC (“Administration of Industry and Commerce”) websites, search in Chinese, and with a bit of luck find some information about your target.
Chinese company WHOIS domain lookups – how useful are they?
This is another “can’t hurt not not fool-proof” method. I have never used it and I don’t see it as reliable.
Using Error Level Analysis to Spot Photoshopped Documents from Scammers
This one is really for geeks! As I wrote before, many certificates provided by Chinese suppliers are fake, so detecting “photoshopping” can only be a good thing.
Do you have other tips for verifying a Chinese company’s legitimacy?
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If a buyer goes that far and looks up a business registration he is to be considered already smart. We had 3 cases in the last 2 months when the potential buyer did not even consider this to be necessary:
1. The buyer found a supplier with ‘very good prices’ and ordered the merchandise. Supplier demanded 100 % payment in advance through Western Union, in small installments. After the supplier received the money, he increased the price by 250 %. The buyer contacted us for help, when we looked into the ‘company’ we found an English language only website, the address given was fake. Phone calls were routed through a call-forwarding company and not answered any more when we asked for a meeting. Financial loss for the ‘buyer’: USD 9,000.-
2. The European buyer contacted a local company and started negotiation for the products. That all went to his satisfaction, so he specified the components for us as binding in a new project. When we asked the local supplier for a meeting and an audit at his factories, he declined. We went to the given ‘headquarter’ address in Shenzhen anyway and found an abandoned office. The building management told us, that the tenant hasn’t been seen for almost a year and they opened a court-case because of significant outstanding payments for rent and utilities. No direct financial loss for the buyer in that case, just wasted 2 months of work and his project will be delayed
3. Another European buyer wants to order electronic components and asks a close Chinese friend, ABC-Co., Ltd. (that name is not made up!) to source them for him. She comes up with a list of QQ and mobile-phone numbers, no addresses, no company names. When we informed the buyer, that this is a recipe for disaster and he should be very careful dealing with this, he got angry and explained, that this is the way ‘business is done in China’. We disagreed.
All of the above is, of course, not representative for businesses in China. But it needs two to tango, and the fraudulent companies apparently have a never ending supply of overseas buyer who are, to express it polite, more than naive. It costs very little, with the help of a local office, to verify at least that a company actually physically exists where it claims to be.
Hi Cornelius,
This is very well put. Yes, scammers have a never-ending supply of negligent buyers. And more inexperienced buyers means more scammers.
By the way, I am surprised that you send your staff to check the offices. One day you might find a ring and have serious problems. I’d just send an inexpensive package with SF Express first, and see if it gets delivered.
Ask to see a copy of the Chinese Company Business License. And also a copy of the Capital Verification Certificate. Detailed full instructions are also here with everything you need to know, including links to copies of Chinese licenses explaining what they say: http://www.china-briefing.com/news/2013/09/23/due-diligence-in-china-you-can-conduct-yourself-the-a-to-z.html
Good suggestions and very good link, thanks!
Hi Renaud,
I have yet to source something from overseas so excuse my naivete. I was curious, what about asking supplier (factory or middleman “agent”) for references? What reason would they give for NOT providing references? I imagine they might say that their customers prefer to stay anonymous but is that a sincere response? I thought the legitimate suppliers would be proud to disclose customers as proof of their reliablity. I would appreciate your thoughts on this.
Great blog, btw!
Thanks!
Hi San,
In most cases, they will refuse to give you customer references. Many good manufacturers want to keep their customer list private (except when they work with huge retailers that everybody knows), for fear that competitors will try to contact the customers and underbid them.