Tips on China company verification part 1

[yuhaoroman]

By Steven Chow, from China business and legal consultation -chinawhy.net

The main users of Chinawhy are small business, who either don't have enough resources or don't have enough money to conduct a pre-transaction verification on potential suppliers. Search Ask Steven forum and Alibaba forum, we will see that a lot of scams and disputes could have been avoided if we could have some general ideas and knowledge on how to verify a China-based company. Based on our years experience on company verification, we would like to share the following tips with our fellow users while emphasizing the need and importance for official company verification(include site visit and check with local Administration of Industry and Commerce) if your purchasing value is relatively big.

Company Verification Tips

1) Always send money to business account instead of personal account
Unlike other countries, China introduce strict regulation on company formation, so if we can verify a company is real, then it is relatively safe to trade with them. Every companies in China should have a business account or company account if they are real and legit. Company account is the most important indicator to judge whether a company is real or not.

Some may ask what is company account and what is personal account and what is the difference? Good question. I will give you an example to show you the difference.

If an account goes like this, it is a personal account:
Beneficiary name: Zhou Jianming(my name)
Bank name: Industrial and Commercial Bank of China
Account No.: 35000********************
Swift Code:ICBKBJHLJ

And this is a company account:
Beneficiary name: Harbin Freedom Energy Sootblowing Co., Ltd (a company name)
Bank name: Industrial and Commercial Bank of China
Account No.:35000********************
Swift Code: ICBKBJHLJ

Just check if the beneficiary name is a person or a company, so that is pretty easy. All the companies should have a RMB company account, while those export-oriented company should have a multi-currency company account to receive foreign currencies. Export-oriented company means those companies who have applied and been approved the right of import and export.

These days I have been helping an American customer sourcing for electronics, the following story is a good example on how to tell the fake company out of real company by insisting on paying to company account only. When my customer give me the company info of the potential supplier, I am not sure if they are real company or not if I don’t verify them properly, so I use this trick, I ask my customer to insist on paying to company account instead of personal account, the supplier respond that they are small company so don’t have company account, it is a lie, every company should have company account since it is formatted, and I instruct my customer to ask them for their RMB company account and said we will pay through our agent in china to their RMB company account, then the supplier say they have the RMB company account, no problem. But later they say that the tax is very high so they use personal account instead of company account. Good excuse. Actually many private company do use personal account to avoid tax. But in this case, I want my customer to push on to see if they have a company account, by which to check if they are a real company. So my customer ask how much is the tax? And he could cover the tax for trial order. The supplier said 30%, and I by then can tell he is not a company, but a individual, a liar. Normally the tax is about 4%, if you want a VAT invoice, they will add 17%.

Tips on China company verification part 2

Good advice!

Please explain the part 1 in short...