How to check a Chinese company's activity
Importers looking for a supplier often end up with a short list of candidates who confirmed their interest and gave reasonable quotes. So, what is the next step to pick the best one?
If the buyer is ready to invest a few thousand dollars to increase his chances of making a good choice, I usually advise him to check the company's activity with a "background check", as a first step.
A few candidates are usually eliminated this way, and then we can proceed with factory capacity audits--which are more expensive than checking a company's activity--on the last candidate(s).
So, how does a background check work?
A provider of verification services simply gets information about the target company's legal documents and financial statements. They can also gather more data and analyze them, for their most expensive reports.
This is not a service we provide. We usually refer our clients to Glo-Bis, which gets its information directly from Sinotrust. Their Business Credit Report, for 230 USD, is very useful.
There are many other options, as listed in the latest option of the China Sourcer:
Among the biggest providers of credit reports for companies in mainland China are:
- China Credit Information Service – Taiwanese and Chinese joint venture;
- Coface – French trade finance company;
- Graydon International – co-owned by European financial services companies Coface, Atradius and Euler-Hermes;
- Huaxia D&B – Chinese and American joint venture.
In addition, there are a multitude of smaller Chinese providers who are often cheaper and more flexible with regard to individual customer requirements. Yet often times their rating methodologies do not match the higher standards of the bigger players.
What do you learn in a background check?
- The real size of the company: how much does it sell, and is it growing?
- Their profitability and the amount of their debt: a money-losing business tends to cut corners more often, and usually indicates a poor internal organization.
- Do they really own a factory? Many intermediaries pretend to be manufacturers, but you will spot them immediately based on the size of their assets and their number of employees.
- The proportion of their international sales: you should avoid suppliers who sell mostly on the domestic market or to developing countries, if you cannot afford bad surprises regarding timing and quality.
Note: background checks are often called "credit checks" or "credit reports" because they are mostly used to help sellers determine the credit-worthiness of their potential customers.