Doing business in China carries specific risks and precautions, especially when sourcing goods, materials, and products. Understanding the steps you should take in your initial research and due diligence when planning to source from a Chinese company can help you avoid many potential missteps and pitfalls that a small- or medium-sized business can face.
While any business relationship carries some level of risk, doing business in China carries a particular set of additional risk factors and considerations that you should understand and fold into your research and due diligence before entering a formal relationship with a Chinese company. This is particularly relevant when you are attempting to source goods, materials, or other products. In this article we outline some of the key items you should consider as you’re planning your sourcing strategy with a Chinese company.
Sourcing from China 101: First steps
Below we list a few fundamentals on where you can start to verify and authenticate your potential sourcing partner in China.
- Website and other online sourcing resources. Like most small- and medium-sized businesses, you’ll likely begin your research via a website search for your sourcing needs. While this is a great place to start, you should proceed with some caution. Especially when sourcing from Alibaba, at all costs avoid unverified suppliers who are not paid, professional suppliers. These also could be listed as free or unrestricted accounts.
- Always ask for key business documentation. There are several key documents that you should always verify and authenticate as part of your research and due diligence process. It’s important to note that many official Chinese business documents easily can be forged, altered, or falsified, so it’s important to know the steps to verify Chinese business documents.
Sourcing from China 101: Additional Verification Steps
As we’ve discussed in other articles here at Nuna Network, at a minimum you should include these key documents as part of your due diligence and verification process:
- Chinese Business License
- Chinese Bank Account Certificates
- Chinese Annual Returns
- Chinese Business Scope Documentation
- Chinese Tax Registration Certificates
- Chinese Foreign Trade Registration Certificates
- China Customs Registration Certificates
In addition to the above steps, it’s also important to understand the common types of fraud that can occur in China, as well as abnormal business operations, various restrictions, and administrative and environmental penalties placed on companies that find themselves on the dishonest practices database.
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