Do you run or plan to start importing from China but do not know whether your Chinese business partner is a legally registered company? This is a common problem when doing business with Chinese companies, especially when you do it through the Internet and use B2B portals like Alibaba.com. The question seems peculiar, but still not enough people ask themselves about it. Surely it would possibly avoid a lot of scams if the importer had access to this apparently trivial information about a supplier from China.
So how can you check if a Chinese company exists? Or how can you know about china trade credit?
It is worth to be sure that the company has a legal registration in China.
Entrepreneurs frequently ask for the company’s references, certificates, or financial statements, and at the beginning, it is good to start by checking if you are dealing with a legally registered company or with a cheater. The problem is that the importer believes that if a company has a website or an account on a B2B website, then certainly it exists and runs a legal business. Unfortunately, scammers frequently create invented names to give themselves credibility. It works. If you see that, on the website or in the e-mail signature, a name with the appendage “Co., Ltd.,” you assume that this Chinese company must be legally registered. This blind assumption can cost your company a lot of money. And unfortunately often you cannot do much about it.
The company was registered but the registration has expired.
Another common case is that the business license has expired. Sometimes it turns out that the company had a business license, but it was not renewed. Sometimes scammers use the license of another company that is no longer registered. You should not only check whether the company has a license but also whether it is valid. If not, then you should really reconsider whether you want to import from China using such a supplier. It is worth adding that the risk of fraud in this case increases drastically.
What can we do to protect our company from untrustworthy supplier?
First of all, ask our business partner to show a copy of the business license. With this document, you can check if it is valid and whether it actually belongs to the right company. Transferring other companies’ licenses does happen. You also must be sure that the document has not been fabricated in a graphics program (for example, in Photoshop). Every legally registered Chinese company has a business license, so do not believe in excuses (the most common are: the license is lost or the license is in a locked drawer and the person who has the keys is on vacation). In addition, for Chinese companies, the business license is their most important document.
Credit risk in China means the country will find it very hard to grow. Global credit ratings agency Fitch Ratings has warned that the extent of china credit could make it very difficult for the country to grow its way out of excesses as it has in the past. The comments suggest tougher times ahead, which could impact on businesses.
Over the last decade China has grown at an impressive rate making it an attractive prospect for firms worldwide. However, the report from Fitch Ratings found that the ratio of credit to GDP now stands at 200 per cent, leading to the agency predicting muted growth.
Speaking to the Telegraph, Charlene Chu, Fitch Rating's senior director in Beijing, said, "The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation.
"There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signalling."
China's credit bubble could affect British businesses operating in the region. Ensuring that suppliers and customers are regularly checked for stability and creditworthiness is key for maintaining a strong supply chain.
Graydon's International Credit Risk Assessment Monitoring services enables businesses to keep up to date with trading partners'current situations. The latest credit information is automatically added to a client’s database allowing them to monitor critical events and rating changes. Additionally, email alerts are sent the second new occurs so businesses can rest assured they will be well informed should risk emerge.
Many UK businesses have offset European losses due to increasing demand in China and other fast-growth nations but it is vital for them to remain cautious and alert for changing market conditions.
