Factory or trader? Verifying a Chinese supplier

Reading a Chinese business licence

Every mainland Chinese company has a business licence — 营业执照 — and the fields on it are standardised. Ask for a copy. A legitimate exporter will send one without hesitation; hesitation is itself information.

The 18-digit code, decoded

The Unified Social Credit Code is structured, not random. Reading it takes ten seconds and tells you something.

9 | 1 | 440100 | 123456789 | X

• Position 1 — registering authority. Almost always 9, the market regulation administration.
• Position 2 — entity category. 1 is an enterprise, 2 an individually-owned business, 3 a farmers' cooperative. A "factory" registered as an individual sole trader is worth a question.
• Positions 3–8 — administrative division code. This geolocates the registration. A supplier claiming a Guangdong factory should have a code starting 44. One starting 11 is registered in Beijing; 31 is Shanghai. Not automatically wrong — but ask why.
• Positions 9–17 — the organisation code.
• Position 18 — a check digit. An invented or mistyped code fails it.

The USCC on the licence, the USCC on the government register, and the taxpayer ID on their VAT invoice should all be the same string. If they are not, you are looking at more than one entity, and you need to know why.

Business scope: the decisive test

Chinese business scope is written in standardised verb phrases, and those verbs are a legal boundary rather than a marketing description.

A company whose scope contains only trading verbs cannot legally manufacture. If they are showing you a factory and the scope says 销售, either the factory belongs to someone else or they are not being straight with you.

Two more quick tests

• The VAT invoice question. Ask whether they can issue a 13% special VAT invoice (增值税专用发票) in their own name. Manufacturers generally can. It is a question that separates people quickly.
• The industry classification code. Visible on register records. Manufacturing sits in divisions 13–43; wholesale and retail in 51–52.

Checking the government register

China publishes company records at gsxt.gov.cn — the National Enterprise Credit Information Publicity System. It is free, official, and in Chinese. Paste the USCC or the Chinese name.

What you can confirm there: that the company exists, its registered legal name, establishment date, registered capital, legal representative, registered address, business scope, and its current standing — including whether it has been listed as an abnormal operation.

Commercial mirrors like QCC (企查查) and Tianyancha (天眼查) present the same underlying data more legibly and add litigation history and shareholder structure. They are convenient. The government register is the authority.

What Alibaba badges do and do not mean

Gold Supplier is a paid membership. It means the company pays Alibaba. It is not an audit.

Verified Supplier involves a third-party check of some company details. It is better than nothing and considerably less than a factory audit.

Trade Assurance is the one with real substance: it is an order-protection scheme where payment goes through Alibaba and you can claim for non-delivery or products that do not match the agreed specification. Its limits matter, though — it covers what is written in the order terms, so vague specifications protect nobody, and it only applies when you pay through the platform. Paying "off-platform to save the fee" voids it entirely, which is exactly why some suppliers suggest it.

On the sourcing channels themselves: Alibaba is export-facing and English. 1688 is the domestic Chinese-language marketplace — cheaper prices, but the sellers generally do not export and do not speak English. Made-in-China and Global Sources are the other export platforms. Yiwu market is the physical wholesale market for small commodities. And the Canton Fair in Guangzhou remains the most efficient way to meet a large number of manufacturers in person in a short time.

The scams, and the defence for each

1 · Bank account switching — the one that takes the most money

A fraudster gets inside your email thread, either by compromising an account or by registering a lookalike domain. They read the correspondence, wait for an invoice to fall due, and send new payment instructions. You wire. Days later the real supplier asks where the money is.

The domain trick is designed to survive a glance: supplier@company.co instead of .com; a capital I where a lowercase l should be; rn reading as m.

The defence is procedural, and it is absolute:

• Never accept a bank detail change by email. Call a number you already had on file — never a number contained in the email requesting the change.
• Record bank details once, at contract stage, as a signed annex. Instruct the supplier to reference the annex rather than restate details in correspondence.
• Send a small test wire to any new account and get verbal confirmation of receipt before sending the balance.
• Put a clause in the contract requiring notification of any account change by telephone to a named person, and allocating the loss if they fail to.
• Prefer mainland Chinese accounts to Hong Kong or third-country accounts.

Harris Sliwoski, the US law firm whose China practice documents these cases, report that close to 85% of fraudulently redirected payments land in accounts in China or Hong Kong and are notoriously difficult to trace or recover. If it happens: contact your bank immediately for a wire recall — success falls away quickly with time — and approach the supplier collaboratively rather than accusatorially, because the breach may well have been on their side.

2 · The sample-versus-production switch

The sample is excellent. The production run is not. By the time you find out, the goods are in Ethiopia and the money is gone.

Defence: a pre-shipment inspection against the approved sample, with the right to reject before loading. This is the entire reason inspection exists. Keep the approved sample, sealed and dated, and inspect against it rather than against a description.

3 · Quality fade

The first three orders are fine. The fourth is slightly worse, the fifth worse again. Margins get recovered quietly by substituting materials. It is gradual by design, because gradual does not trigger a complaint.

Defence: inspect every order, not just the first. Fixed specifications in writing, with named materials and tolerances rather than adjectives.

4 · Deposit and disappear

A 30% deposit on a container is a large sum, and a company that never intended to ship is happy to take it.

Defence: verify the entity before any money moves; start with an order small enough that losing it would not hurt; pay to the company account only; use Trade Assurance or an LC rather than a bare transfer for a first order.

5 · Fake certification

CE, ISO and FDA marks are widely forged. A PDF of a certificate proves nothing.

Defence: verify the certificate number with the issuing body directly. For goods entering Ethiopia this is doubly important, because a certificate of conformity from an unauthorised body will not clear customs — see our permits guide.

Paying safely

The beneficiary name must match the registered legal name exactly. Not a close match, not an English translation, not a trading name. When the proforma arrives, put three things side by side and compare the Chinese characters: the 名称 on the business licence, the name on the government register, and the beneficiary name on the payment instruction. A difference as small as 科技 (Technology) versus 贸易 (Trading) in the entity name means a different legal person.

Hong Kong accounts are a yellow flag, not a red one. Legitimate reasons exist — a genuine HK holding company, an export agent, historical banking arrangements. But an HK account moves any dispute into a different jurisdiction from where the mainland entity's assets sit, and it breaks the verification chain between the registration you checked and the bank you are paying.

If you accept one, do it properly: name the HK entity as a contracting party, verify its registration separately with the Hong Kong Companies Registry, and get the relationship between the HK entity and the mainland factory confirmed in the contract, before the first order — never in an email mid-transaction.

As documentary support for an account, ask for a bank-stamped account confirmation letter on the bank's letterhead showing the account name, account number and USCC. The older Bank Account Opening Permit (开户许可证) stopped being issued to newly registered businesses in 2019, so its absence is not suspicious in itself.

Pre-shipment inspection

A proper pre-shipment inspection covers quantity, workmanship against the approved sample, specification and dimensions, function testing on a sample basis, packaging and labelling, and carton markings. It uses AQL sampling — a statistical standard that defines how many units to pull from a lot and how many defects are acceptable — rather than opening everything.

A good report is dated, photographed, and states clearly what was checked and what failed. The major independent inspectors all operate across China: SGS, Bureau Veritas, TÜV, Intertek and QIMA.

The value of inspection is not the report. It is the right to stop the shipment while the goods are still in China and still the supplier's problem. Once a container sails, your leverage is gone.

Structuring a first order

1. Verify the entity before discussing price. USCC, register record, business scope, name match.
2. Get a sample, and keep it sealed and dated. Sample costs are normally paid by the buyer and often credited against a first order — ask.
3. Write a real specification. Named materials, dimensions with tolerances, packaging, labelling. Adjectives are not enforceable; numbers are.
4. Make the first order small enough to lose. This is the cheapest due diligence available. A supplier who will not take a trial order is telling you something.
5. Pay in stages, against verifiable events. Deposit to place the order, balance against inspection and shipping documents. A 30/70 split is conventional; 100% up front is not.
6. Inspect before loading, and mean it. The right to reject is only real if you are willing to use it.