Working with Chinese companies presents challenges alongside significant opportunities for profit. Therefore, it is crucial to gather reliable legal information about any Chinese companies you consider partnering with. It is recommended that extensive due diligence, including a China supplier verification check, be carried out before entering into business transactions.
Verifying the validity of mainland Chinese businesses before doing business with them, whether as suppliers or customers, is crucial to reducing any potential dangers. This process involves identifying the company's accurate Chinese name, legal representatives, registered capital, business scope, address, and more.
Verifying Chinese companies extends beyond checking their business licenses, as many suppliers have been known to exaggerate capabilities, and numerous trading companies misrepresent themselves as factories. These precautions are essential to safeguard against common pitfalls and ensure successful business partnerships in China.
Certainly, conducting research on Chinese suppliers independently is feasible as all the necessary information is available for verification. However, it can be a laborious and time-consuming process.
The main problem is that most important information is provided mostly in Chinese characters, which means that unless someone on your team speaks the language fluently, it is not accessible.
Without this capability, finding and confirming the required information becomes significantly challenging Therefore, you can either hire a person who is familiar with the Chinese language or appoint a sourcing agent in China who can help you in this verification process.
In this post, we will cover legal aspects of how to verify Chinese companies before entering into any agreement of doing business.
How can you verify the legitimacy of a Chinese company?
Verifying the legitimacy of a Chinese company involves several methods, as simply being legally established in China does not guarantee reliability. Here, we will explore six methods to ascertain a company's legitimacy.
The first two are straightforward for beginners, while the remaining four are more advanced and help in identifying illegitimate Chinese companies.
1. Whois.com - To find when a Chinese company entered into business
Begin by questioning the accuracy of an Alibaba supplier's claimed establishment date. Chinese companies frequently exaggerate their years in operation, leaving buyers without means to verify the truth.
Whois.com provides a useful tool for swift verification. Enter the company's website to check its domain registration date. Typically, the domain registration aligns closely with the start of their business, sometimes even preceding the official company establishment date.
Pros of this method:
- To conduct a search, you do not require the company's Chinese name.
- This is a free domain to search.
- This approach is quick and easy compared to the other approaches we will discuss shortly.
Cons of this method:
- You need to understand that the date of company incorporation and the date of domain registration are not the same. You can have an approximate idea about the length of time they have been in business.
- It is unclear if this corporation registered the domain first or acquired an already-existing, outdated domain. For instance, a 2020-founded business could purchase a domain name that was registered in 2006 in order to launch their website.
2. Archive.Org - To learn about the business scope history of Chinese suppliers
Archive.org, also called as the Internet Archive. Its name suggests that this website can record every change of every website in the world. By using this website, you can find out:
- How long has this Chinese business been in business?
- When was the website first documented?
- How the operations of this Chinese corporation have evolved (Web content modifications records).
- Whether this company's domain name has been transferred (as an addition to procedure mentioned above).
However, with this method you may not be able to verify the exact year when the Chinese company started its business. For example, if a company's domain name was registered in 1996, but archive.org may indicate it began operating in 2013.
There is a possibility that the domain previously belonged to another entity before this company had started.
Pros of this method:
- To verify the Chinese company on archive.org, all you need is their URL.
- Since archive.org is a non-profit organization, it offers its services without charging a fee (but you are welcome to donate in order to support them).
- Whois.com does not provide as much information as archive.org when it comes to verifying Chinese suppliers.
- Simple and quick (in contrast to the procedures we will discuss next, for verifying Chinese companies).
Cons of this method:
- Since all of the records on archive.org are based on the website of the vendor, they may not all be objective.
- It is impossible to determine a Chinese supplier's dependability by looking at their website.
3. Verify whether the Chinese company is registered
The NECIPS. is the best resource for how to verify Chinese company and its legal registration status or business license. The Overall Administration of Market Supervision introduced NECIPS, an enterprise information database in February 2014, with the goal of enhancing China's credit system for business environment.
A business license in China will offer the following information:
- Unified social credit identifier, which is an 18-digit USCI number
- Company name (in Chinese script)
- Company type
- Legal representative
- Business scope
- Registered capital
- Founding date
- Operating period
- Registered address.
Some companies may manipulate the founding date or business scope on their business license through Photoshop to appear more reliable or factory-like. If your Chinese supplier provides you with their business license and you need to verify its authenticity, you can search in NECIPS by entering either the USCI number or the Chinese name of the company.
Pros of this method:
- The Chinese government manages the National Enterprise Credit Information Publicity System, which provides accurate information.
- NECIPS searches are free.
Cons of this method:
- You need to get in touch with your Chinese company so that you can complete the NECIPS search (You need to ask them for their USCI number, business license, or the company in Chinese language).
- A real-name system was introduced by the NECIPS. in November 2021. That means in order to use NECIPS going forward, you will need to supply the legal name and ID number.
- Because of its extreme slowness and inability to open on occasion, the NECIPS system will be blocked from access after a few more clicks, which will be interpreted as an attack on the system.
4. Check what lawsuits your Chinese company has gone through
Finding a company's information on NECIPS or verifying its business license as genuine does not guarantee trustworthiness. In China, registering a company is relatively inexpensive and quick - about $100 and a two-week wait - with no requirement to rent office space. Thus, legal registration alone does not ensure reliability.
Checking a business license won't prevent potential losses from encountering professional scammers or unscrupulous Chinese suppliers.
Instead, consider researching a company's litigation history through China Judgements Online. This platform reveals if a company has been involved in fraud or failed to fulfil orders after receiving payment.
Verifying a Chinese company's legitimacy through litigation records is crucial to avoid potential risks when partnering with your Chinese suppliers.
Pros of this method:
- The most extensive database of judgment announcements in China is found on China Judgements Online.
- There is no cost to access China Judgements Online.
Cons of this method:
- Online occasionally experiences a delayed response time due to its large visitor base.
- Prior to accessing China Judgements Online, you need to register using your mobile number.
- Should the parties feel that a particular judgment infringes upon personal privacy or business secrets, it will not be accessible on China Judgements Online.
5. Check the defaulted company list (A national-level blacklist)
If a company is taken to court, it does not automatically imply guilt. Detailed case records are necessary to determine the facts accurately.
How to verify Chinese company by a direct method is checking if they appear on the national court list of defaulted executes. A defaulted execute is someone who has the ability to fulfil obligations but fails to do so as stipulated by legal documents.
For instance, if a company is sued for failing to deliver goods according to contract terms regarding quality and timeline, and the Chinese court rules they must compensate the buyer, but they refuse to comply, they could be listed as a defaulted execute.
Visit the Chinese Execution Information Disclosure System to access this national blacklist. If your potential supplier or company owner is listed, it is advisable to avoid engaging with them.
Pros of this method:
- It is simple to understand this national credit blacklist essentially, you should avoid doing business with any company that appears on it.
- There is no cost to use the Chinese Execution Information Disclosure System.
Cons of this method:
- All of the businesses on this blacklist are duly registered. Untraceable scammers will not be included here.
- Not every case record will be accessible to you. For reasons of business secrecy and privacy, some cases will not be made public.
6. Consider company verification services in China
Due to factors like server location and information security, overseas buyers often face challenges accessing information about Chinese companies through the Chinese government's databases.
For importers embarking on critical projects and considering potential suppliers sourced from platforms like Alibaba or other B2B sites, utilizing a Chinese company verification service for due diligence is highly recommended.
This approach helps mitigate risks and streamlines the verification process, ensuring that the selected suppliers are trustworthy and reliable. It also saves valuable time by providing comprehensive insights and verification reports that may not be easily accessible through direct searches.
Pros of this method:
- Preserve time: With the help of the China company verification service, you can have your prospective firm's due diligence report in one or two business days.
- Thorough data: With this company verification service, you can get more detailed information about a Chinese company.
Cons of this method:
- Service charges are not inexpensive. Every company verification report often costs between $100 and $200.
- Only a single company's background check information is covered in each report.
These checks are not meant for product quality
The primary objective of sourcing a manufacturing company in China is to produce products that are both reliable in quality and competitively priced.
While you can gauge cost competitiveness by communicating with the supplier, assessing product quality is not straightforward and cannot be determined solely from samples or company legitimacy.
From our extensive experience with Chinese suppliers, it is crucial to emphasize that the quality of a large shipment can vary significantly from the quality of the initial sample you receive. Therefore, conducting a thorough quality audit is essential to gain accurate insights into the product quality of the Chinese company.
There are several companies in China that can perform quality audits of any Chinese company, as per your format. These companies offer service as a third-party service provider, and you can trust their audit report.
In this way, you can verify both the legal status and the quality status of the company without paying a visit to China. If you hire a Chinese sourcing company, they can coordinate this activity on your behalf.
Conclusion:
To conclude this article, we aim to create a comprehensive understanding of how to verify Chinese company. This includes being informed about the regulatory requirements established by the Chinese government and the legal considerations involved.
You can acquire detailed information such as company registration status, trademark and copyright registrations, patents, and legal services, among other pertinent details. However, you need to understand that with this kind of verification, you can only establish the company's legal status.
If you want to know the company's product quality, then you need to perform a quality audit through a third-party company available in China. This way, you can obtain the required information about the company before tying up with them.
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