Despite many factors, there are many businesses buying from China. Some of them always try their best to find the “cheapest” products as far as they can, however they forget the most important point which is due diligence. In the end, they found themselves having paid for the “cheapest” products, but sometimes with extra problems.
Actually, the fee for due diligence is not so expensive, why not hire a professional to do it for you, to avoid some possible big problem?
From our experience, there are generally three issues for a standard due diligence can help to answer:
1. If the supplier is legally incorporated in mainland China?
However, a company incorporated in mainland China, is different. ( You may check our post: What Can We Learn from a Business License? to know more.)
From all the inquiries we receive asking for assistance, the largest is for helping to get their money back while more than 80% of the clients have found the businesses they are dealing with involve fraud. It’s true, they are companies incorporated in Hongkong, but the purpose for them opening the company is for fraud instead of business. The reason for them to set up a company in HK is that they can open a business in HK with little liability with zero assets. Even if the person has a business in China but opens a company in HK they are 2 separate operations and the Chinese business is not liable for the HK company.
Firstly, virtual office is not allowed, the investors need to rent an office to set up the company, few frauds are willing to do so, as the cost involved is comparatively high.
Secondly, any defendants who refuse to enforce the judgement will be put on a blacklist, which is nationwide (in mainland China, of course).
Thirdly, if the company is a factory, then they can have assets under the company’s name, usually they are real businessmen and don’t want to get involved in any litigations
2. If the company a trade company or a manufacturer?
As analyzed previously, a factory/manufacturer has assets under their name, while a trade company probably has nothing at all. On the other hand, usually you will get a better price directly from a factory/manufacturer.
3. If the company in good standing?
In China we have some paid databases which are useful for finding out more information on the company. Such as, is there any company relevant to this company? Is this company in any litigation? For what cause? Is the company a defendant or a plaintiff? Is there any record stating that the company refusing to enforce the judgement? Does the company ever been ordered to pay fine by the government? Etc.
If you want to avoid any potential risk, it’s highly recommended to do a due diligence before you make the payment! All you have to do is to contact us!
