China offers a prime example of export-led growth that has benefited from learning by doing and by adopting foreign know-how, supported by a complex industrial policy. Arguably, a modern version of mercantilism has been at work. The Global Crisis put an abrupt end to China’s export-led, high growth and large current-account surplus trajectory. In the US, the private sector was forced to de-leverage and lower demands for imports. Other crisis-hit developed countries also cut back on imports. Consequently, the Global Crisis and its aftermath induced rapid Chinese internal balancing, reducing the scope of future reserve hoarding.
In an attempt to revive the Chinese economy, the People’s Bank of China clipped interest rates for the sixth time since November as well as reduced its reserve-requirement ratio for banks. The country’s benchmark lending and deposit rate was cut 25 basis points, while its reserve-requirement ratio for banks dropped 0.5 basis points.
"The idea that this signals even greater weakness in the Chinese economy is flawed, but so is the idea that rate cuts represent a solution to slowing growth,”said Leland Miller, president of China Beige Book International, in an email to NACM. “When firms don't want to borrow, which is the case now, stimulus doesn't work. So while this is certainly a trading event, its effect on the economy will be negligible."
Credit insurer Atradius also released a new report this week that focuses on payment practices in China. It states that 62% of businesses said domestic business-to-business (B2B)“customers have slowed invoice payment due to liquidity problems over the past year.” On average, domestic B2B credit-based sales are 41.8% of local sales, while abroad B2B credit-based sales are 34.2% of the total value of exports. Both figures are notably lower than the average of the other Asia Pacific countries surveyed.
The statistics “confirm that Chinese respondents prefer payment in cash, cash equivalents or on other terms other than chinese trade credit, particularly in transactions with their foreign B2B customers,” the report notes. “This suggests an inconsistent perception of payment default risks arising from domestic and foreign B2B trade.”
On average, domestic B2B customers are given 37 days to pay invoices and foreign B2B customers receive 41 days. Late payments occurred almost as frequently domestically as abroad, and nearly 94% of respondents experienced late payments from their B2B customers over the past year. “The domestic insolvency environment in China is expected to deteriorate in the coming months, as economic growth is cooling down,” the report says.
2015年12月29日 星期二
2015年11月9日 星期一
Chinese Company Verification: How to Vet Suppliers
Two often I hear Buyers making supplier selections on highly arbitrary factors, primarily the responsiveness the sales rep on the other side. Such factors are largely irrelevant. A supplier selection without the right data is often the root cause of quality issues further down the road. In this article, we explain how you can perform a China Company Verification by analyzing their documentation. This procedure can be managed from your office, and doesn’t require an on site visit.
Considering it a first step of the selection procedure, as there are limitations to what can be done from a distance – as compared to more comprehensive, and far more expensive, factory audits. The ideal outcome is identifying a number of potential candidates. In this article, we look into two sets of documentation, company related documents and product related documents, and the role of buyer references and US customs data.
Company Documents
a. Business License
Every registered company, regardless of type, in Mainland China, has a business license. The business license contains key information about the company, that can tell many things about the supplier. For importers there are two parts of particular interest:
Registered Capital: All limited liability companies have a set registered capital. The registered capital amount indicates the size of the company. The more, the better – and a company with a very low amount, below RMB 500,000, is likely a trading company. Not a manufacturer. It’s hard to set a minimum limit, as it varies by industry. Watch manufacturers, for example, tend to have below RMB 1,000,000 in capital. Watch manufacturing is a low value added industry, and the need for capital (both in terms of money and machinery) is rather low. However, in other industries, say LED displays, RMB 1,000,000 is far below the minimum. I suggest that you look at the ratio, between different suppliers in a given industry, rather than fixed minimum numbers.
Business Scope: Specifies the nature of the company. For suppliers of goods, the specific type of products is listed. The business scope can be very helpful in determining whether or not you’re dealing with a ‘proper’ manufacturer, or a trader. For manufacturers, the listed products tend to be more specific, and within the same category. Also look out for terms like ‘production’ and ‘assembly’. Trading companies, on the other hand, tend to include products of very different nature (i.e. electronics, watches and textiles). If the business scope only mentions ‘wholesale’, ‘trade’ and ‘distribution’, it’s most likely a trader.
Keep in mind that the business license is only available in Chinese language. Suppliers have no reason to refuse sending a copy of their business license, but if they do, request them to share their business license / company registration number. With this number, you can access the very same information on Chinese government websites. However, the online company databases are exclusively in Chinese language.
b. Bank Account Details
Payment frauds are relatively common. That being said, confirming the supplier’s bank account details early on is not only a fraud prevention measure, but also quite telling in itself. This is what you should request:
Beneficiary Name: The company name of the bank account holder must match the supplier name. Never pay to a personal bank account, or one that is not matching the suppliers English language company name.
Country / Region: Many suppliers, especially those based in Guangdong province, hold offshore bank accounts in Hong Kong. This offshore account is almost exclusively held by an offshore company, rather than the company entity in Mainland China. Yes, it may sound complicated, but in short this means that there is no direct link between the actual manufacturer, and the seller of goods. In case of dispute, a scenario that shall never be ruled out, it’s easier for the supplier to evade responsibility.
c. Quality Management System Certificate
A Quality Management System (QMS) is a set of rules and processes for monitoring quality throughout the production line. There are various standardized protocols, with ISO 9001 being the most common. If a QMS is applied properly, the risk of defective products is vastly reduced. In order to prove compliance with a QMS, which is required by many overseas buyers, a supplier can choose to go through yearly audits. A passed audit results in the issuing of a Quality Management Certificate. This is what you should be looking for:
Product Scope: The QMS is only valid for the products / product categories listed on the certificate. This shouldn’t differ much from the products specified in the business scope.
In principle, the same checkpoints apply as for the Quality Management Certificate. But, why is Social Compliance (i.e. BSCI) and Environmental (i.e. ISO 14001) Certification relevant? Apart from the obvious ‘feel good’ factor, you should consider the following:
1. Suppliers with BSCI and ISO 14001 have often ensured compliance to attract large overseas buyers. Such suppliers are more likely to maintain high standards in both technical and managerial terms.
2. Social and Environmental Safety matters, even from a strictly commercial perspective. You don’t want to be associated with suppliers guilty of labor violation and contamination of the local environment. The Chinese government has stepped up enforcement of environmental protection laws, in the last few years, resulting in crackdowns in entire industries. Last year I had the unpleasant experience of dealing with a shipment, held by a supplier who was forced to halt operations due to said violations.
Considering it a first step of the selection procedure, as there are limitations to what can be done from a distance – as compared to more comprehensive, and far more expensive, factory audits. The ideal outcome is identifying a number of potential candidates. In this article, we look into two sets of documentation, company related documents and product related documents, and the role of buyer references and US customs data.
Company Documents
a. Business License
Every registered company, regardless of type, in Mainland China, has a business license. The business license contains key information about the company, that can tell many things about the supplier. For importers there are two parts of particular interest:
Registered Capital: All limited liability companies have a set registered capital. The registered capital amount indicates the size of the company. The more, the better – and a company with a very low amount, below RMB 500,000, is likely a trading company. Not a manufacturer. It’s hard to set a minimum limit, as it varies by industry. Watch manufacturers, for example, tend to have below RMB 1,000,000 in capital. Watch manufacturing is a low value added industry, and the need for capital (both in terms of money and machinery) is rather low. However, in other industries, say LED displays, RMB 1,000,000 is far below the minimum. I suggest that you look at the ratio, between different suppliers in a given industry, rather than fixed minimum numbers.
Business Scope: Specifies the nature of the company. For suppliers of goods, the specific type of products is listed. The business scope can be very helpful in determining whether or not you’re dealing with a ‘proper’ manufacturer, or a trader. For manufacturers, the listed products tend to be more specific, and within the same category. Also look out for terms like ‘production’ and ‘assembly’. Trading companies, on the other hand, tend to include products of very different nature (i.e. electronics, watches and textiles). If the business scope only mentions ‘wholesale’, ‘trade’ and ‘distribution’, it’s most likely a trader.
Keep in mind that the business license is only available in Chinese language. Suppliers have no reason to refuse sending a copy of their business license, but if they do, request them to share their business license / company registration number. With this number, you can access the very same information on Chinese government websites. However, the online company databases are exclusively in Chinese language.
b. Bank Account Details
Payment frauds are relatively common. That being said, confirming the supplier’s bank account details early on is not only a fraud prevention measure, but also quite telling in itself. This is what you should request:
Beneficiary Name: The company name of the bank account holder must match the supplier name. Never pay to a personal bank account, or one that is not matching the suppliers English language company name.
Country / Region: Many suppliers, especially those based in Guangdong province, hold offshore bank accounts in Hong Kong. This offshore account is almost exclusively held by an offshore company, rather than the company entity in Mainland China. Yes, it may sound complicated, but in short this means that there is no direct link between the actual manufacturer, and the seller of goods. In case of dispute, a scenario that shall never be ruled out, it’s easier for the supplier to evade responsibility.
c. Quality Management System Certificate
A Quality Management System (QMS) is a set of rules and processes for monitoring quality throughout the production line. There are various standardized protocols, with ISO 9001 being the most common. If a QMS is applied properly, the risk of defective products is vastly reduced. In order to prove compliance with a QMS, which is required by many overseas buyers, a supplier can choose to go through yearly audits. A passed audit results in the issuing of a Quality Management Certificate. This is what you should be looking for:
Product Scope: The QMS is only valid for the products / product categories listed on the certificate. This shouldn’t differ much from the products specified in the business scope.
In principle, the same checkpoints apply as for the Quality Management Certificate. But, why is Social Compliance (i.e. BSCI) and Environmental (i.e. ISO 14001) Certification relevant? Apart from the obvious ‘feel good’ factor, you should consider the following:
1. Suppliers with BSCI and ISO 14001 have often ensured compliance to attract large overseas buyers. Such suppliers are more likely to maintain high standards in both technical and managerial terms.
2. Social and Environmental Safety matters, even from a strictly commercial perspective. You don’t want to be associated with suppliers guilty of labor violation and contamination of the local environment. The Chinese government has stepped up enforcement of environmental protection laws, in the last few years, resulting in crackdowns in entire industries. Last year I had the unpleasant experience of dealing with a shipment, held by a supplier who was forced to halt operations due to said violations.
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