Which supplier is More Reliable in China? – From the Eyes of a Chinese Lawyer
By Sun Jin(Marlow), Chinese attorney at Law, Zhejiang Xinmu Law Firm, republishing this article please indicate author and source of this article. Oct. 16, 2015.
You are an international trade merchant, and had some not-small-not-big business in China, often purchase some cargos from various Chinese suppliers. And in nowadays, the payment term will always be something like “30% T/T in advance, balance against copy of bill of lading”, because L/C is too complicated and its cost is a little high. However, sometimes, things will not always develop in a right way, you found a "good" supplier, whose quotation is really good, especially for some chemical products, and you paid them the in-advance payment, but then the supplier disappeared; or they will not disappear, but will send you a full container of sand which is of no commercial value at all, or some cheap salt. You are unlucky, this is called “Hebei Chemical Product Fraud” in China, and this sort of crime had been exist for years, and some criminals were thrown into jail by Hebei police, but more comes up in different Chinese cities. Very simple, the possible profit of more than 10 times and even hundreds of times had driven these guys crazy.
Anyway, so now is the question: which supplier is more reliable in China? According to the opinions of a Chinese lawyer, we have below methods to judge who is more reliable, and this also is applicable in judging normal and legal Chinese businessman, after all, criminal guys is only a very tiny part among all Chinese merchants.
1. Generally speaking, a manufacturer with workshop, land and machines are more liable than a trading company who only has tables and computers; but this is not absolute because if a manufacturer has big properties and real estates and it's a private company instead of national-owned company, it's very likely that they may loan/borrow some huge sum of money from banks, using the big properties and real estate as the mortgage/surety, because in China, private companies always have the big problem of cash flow; and if finally we are lucky enough to share the properties of the company with other debtees, Employee's salary first, and bank's guaranteed debtee rights second, while our ordinary debtee rights will be third; and sometimes no much left for the third part.
2. Generally speaking, a bigger company is more liable than a smaller company, whether it's big, we may see their registered capital and whether they have some subsidiaries, and so on. Of course, this is not absolute either, as the registered capital could be fake in China.
3. Generally speaking, national-owned companies will be more liable than private companies, as in China, national-owned companies are always huge or even giant ones. But generally speaking, national-owned enterprises will not involve in small and intermediate sum international trade business.
4. There is another better method, no matter whether the company is big or small, manufacturing or trading, we will see whether their business is good; a company who has good business, means they cannot give up present company easily, and they may have adequate cash flow, and if we win a litigation, very very likely we can get the money as well, but not just win it on paper. The problem is, above poitns of 1 and 2 could be easily seen on paper as some data are public, but whether their business is good, it's harder to reach the truth, than above points of 1 and 2.
5. There is another even better method, but even harder to judge. When this author was an export businessman, I was told by my teacher, that in international trade, there is no safe payment term (like L/C or T/T or D/P) at all, but safe customer / client does exist. So same to import, if supplier's businessman or business lady especially their boss is a liable, safe and honest person, then we will have very big possibilities that the deal with them is also safe.
6. Generally speaking, if the company who pretends to be a Chinese company, is actually one off-shore company, you may need to pay some special attention to these suppliers, while they might be high-risk business partners, more information on this, please refer to another article of this lawyer: Risks of doing business with Off-shore Companies in China.
And back to our above initial topic, if you are buying some chemical product from China, and your supplier of a Chinese small trading company offered you with a quite Good price; or if you are selling something, and in a sudden a Chinese guy comes to place a big order with good price to you without any bargaining or a real bargaining, you need to be very careful, it might not be a cake falls from sky and hits your head, but could be a real trap (in Chinese language, the pronunciations of TRAP and CAKE are quite similar to each other), when we have “Hebei Chemical Product Fraud” and “big-order scam” which are very often to see and typical in recent years in mainland China.