By the time the client called me, the money had already left. USD 40,000, a deposit for a stainless steel order, wired three days earlier to a Hong Kong account. The supplier had stopped replying on WeChat. The Alibaba storefront was still there, showing a Shenzhen company, a gold supplier badge, and four years of transaction history. The problem was the account holder: “Sincere Global Trading Co., Limited.” The company he thought he was dealing with was a different Shenzhen entity. Different name. Different legal person. Its Chinese name was something he had never really looked at.
That is the frustrating part. Most of this can be prevented. A few hundred dollars, one afternoon, and a short list of checks would stop a lot of damage before it starts. Once the deposit lands, your bargaining power drops. Fast.
The checks below are the ones I keep coming back to in China sourcing disputes. I have put them in roughly the order of risk. The earlier an item appears, the less I would skip it.
Start with who you are actually paying
China’s trade volume is enormous. In 2024, China exported RMB 25.45 trillion in goods, up 7.1%, and total goods trade reached RMB 43.85 trillion, according to customs figures. Most transactions complete without drama. The bad ones often start the same way: the buyer did some checking, but never confirmed who the counterparty was in legal terms.
In mainland China, a company’s real identity is its registered Chinese name and its 18-digit Unified Social Credit Code (统一社会信用代码). Not the English name on the website. Not the platform store name. Not the brand name in the salesperson’s email signature. The English name may be useful for business communication, but it usually is not the legal name confirmed by the company registry.
So the first step is simple. Ask for the supplier’s business license (营业执照), copy the Unified Social Credit Code, and search it yourself on the National Enterprise Credit Information Publicity System (国家企业信用信息公示系统), usually called GSXT, at gsxt.gov.cn. The name, code, and registration status should match the license exactly.
Do it yourself. Do not rely only on a screenshot or PDF the supplier sends you. A business license that looks real is not hard to fake.
The registry can at least tell you a few things:
- Registration status. If it says 吊销 (revoked), 注销 (cancelled), or another abnormal status, stop the transaction for now.
- Business scope (经营范围). If the supplier is selling lithium batteries but its scope is mostly garment wholesale, ask what role it is actually playing.
- Registered capital (注册资本). Read this carefully. The new Company Law, effective July 1, 2024, generally requires shareholders of limited liability companies to pay subscribed capital within five years of incorporation. Older companies with very long payment schedules need to adjust by June 30, 2027. So a company showing RMB 50 million in registered capital does not mean it has RMB 50 million sitting in the bank. Registered capital is more about shareholder contribution obligations than current ability to pay you back.
Finding the company in the registry is only the first check. It does not prove the supplier can make your product. It does not prove solvency. It does not prove honesty. But if you skip this step, you may not even know who to claim against when things go wrong.
The three names must line up
One plain rule saves a lot of buyers: the name on the business license, the contracting party in the contract, and the holder of the bank account should point to the same legal entity.
If those three names do not match, do not rush to pay. Many fraud cases and later disputes begin right there.
The most common version is a supplier asking you to pay a personal account, or a company account with a slightly different name, together with a reasonable-sounding explanation. The company account is under maintenance. There is a tax arrangement this quarter. The factory account is being audited. Please pay the boss, or an affiliate, and they will handle it internally. Once money enters a personal account, recovery becomes much harder. You lose a clear corporate payment trail, and you may struggle to prove the money was paid to the contract counterparty.
Offshore accounts can feel more respectable. Many Chinese trading businesses do use Hong Kong companies for payment. That is not automatically a problem. But if you verified a mainland factory, signed with a Hong Kong company, and paid that Hong Kong company, then you are dealing with another legal person in another jurisdiction. It may have no factory, no assets, and no duty to perform the mainland factory’s obligations unless the contract says so.
If the supplier insists on using a Hong Kong or other offshore company, review that company as a separate party. Check its registration. Confirm its relationship with the actual manufacturer. Write into the contract who is responsible for production, delivery, warranty, and compensation. Do not let “this is our group company” do all the work.
For payment, use a corporate account where possible, a 对公账户. The account name should match the registered supplier name you verified. The contract should also say that payment may be made only to an account held in the company’s own name, and any bank account change must be notified in writing and re-checked through contact details you already had.
Account-change fraud is becoming more common. Someone gets into the email thread and sends “updated banking details” with the same signature block and tone as before. The buyer wires the deposit. The money lands somewhere else. For bank account changes, email alone is not enough.
If you discover the money has gone to the wrong account, call your bank immediately and ask for a wire recall. The earlier the better, especially within 24 to 48 hours. After that, you are usually looking at police reports, evidence preservation (证据保全) where available, and a very sober discussion about recovery odds.
Does the contract actually bind the supplier
A contract with a Chinese supplier is not finished just because someone signed your English purchase terms. A useful contract has to answer three questions: who the counterparty is, whether the company validly accepted the document, and where a dispute will be resolved in a way that can actually be enforced.
Start with the chop. Foreign buyers often underestimate the company chop (公章). In Chinese commercial practice, the company chop is usually the central proof of the company’s intent. A contract with the genuine chop is much easier to enforce against the company, even if the legal representative did not sign. If the contract only has a salesperson’s signature and no chop, you may first have to prove that person had authority to bind the company.
So the contract should use the supplier’s full registered Chinese name and be stamped with the company chop. The chop is usually red and round, with the full registered name around the edge. The name on the chop should match the business license.
Then language. The contract is usually better as a bilingual document, with the Chinese version controlling. Many foreign buyers do not like hearing this. I understand. It means the version that matters most is not the one they read most comfortably. But if a dispute is handled by a Chinese court or arbitration institution, the Chinese text will be more direct and easier to work with. Better to review the Chinese version before signing than argue at the hearing about how an English warranty clause should be translated.
Then dispute resolution. A common mistake is to choose the buyer’s home court and home law because it feels safer. The problem is enforcement. Even if you win at home, if the supplier’s main assets are in China and there is no workable arrangement for recognition and enforcement of judgments, the judgment may not turn into money.
A more practical option is often arbitration in China or Hong Kong before a recognized institution, such as CIETAC. Chinese arbitral awards can be enforced in China, and they may be enforced in more than 170 jurisdictions under the New York Convention. I covered that in part four of this series, so I will not repeat it all here. The short version: the clause needs to state the institution, the seat, the rules, and the language. “We can arbitrate if there is a dispute” is not enough.
I have seen many contracts say disputes “may be submitted to arbitration or to court.” It sounds flexible. In practice, it can create uncertainty. Under Chinese law, an arbitration clause may be found invalid if it does not clearly exclude court jurisdiction or does not identify the arbitration institution. Don’t make it a menu. Choose one institution, one seat, one set of rules.
The history the supplier will not volunteer
A company can be real, have the right chop, and receive money into the right account. It can still be a bad bet. The company registry mainly tells you whether the company is registered. It will not tell you whether it has breached contracts before, failed to pay judgments, or been sued repeatedly.
For that, look at court and enforcement records.
The first database is China Enforcement Information Online (中国执行信息公开网, zxgk.court.gov.cn). It includes enforcement information such as 失信被执行人, judgment debtors who have failed to comply with effective legal documents. As of early 2025, the public list had more than 8.5 million names. If the supplier, or its legal representative personally, appears there, pause and ask why it failed to perform an existing court order.
The second is China Judgments Online (中国裁判文书网). You can see whether the company has been sued, by whom, and over what. One or two cases do not automatically mean the company is unsafe. But if a factory appears again and again in quality disputes, payment disputes, or enforcement cases, that is information. Useful information.
Do not search only the company. Search the legal representative, actual controller, and main shareholders too. Some people move from one company to the next. Looking only at the current entity can miss the pattern.
Commercial platforms such as Tianyancha, Qichacha, and Qixinbao are convenient for a first pass. They package business changes, judicial risk, ownership, and administrative penalties in a readable way. But for anything that matters, go back to the official databases and confirm. The commercial site is an entry point. It is not the record itself.
Factory, or a website wearing a factory hat
Many “factories” on sourcing platforms are really trading companies. They take your order and pass it to another factory. That model is not always bad. A good trading company can help with factory selection, communication, quality control, and export work. You just need to know which one you are dealing with, because it affects quality control, liability, and later recovery.
The signs are often physical:
- A real factory is usually in an industrial area, with production lines, warehouses, equipment, and workers.
- A registered address in a downtown office tower often looks more like a trading company or sales office.
- A product catalog covering electronics, furniture, and textiles at the same time deserves caution.
- If the supplier keeps refusing a video factory tour, third-party audit, or on-site photos, the explanation needs to make sense.
- ISO, BSCI, and similar certificates on the website should show the same legal entity name and address as the business license. If they do not match, the certificate may belong to someone else.
If the order amount matters, arrange a factory audit. At minimum, arrange a pre-shipment inspection. Do not judge production ability only from platform pages, sample photos, and sales promises.
Do not pay the balance on trust
Many sourcing disputes are not about goods never being shipped. The goods ship, but the specifications, quality, quantity, or packaging are wrong. By the time the buyer sees the problem, the balance has already been paid and the goods are on the way. Now the discussion is much harder.
Payment terms should let you keep some bargaining power until you have seen the goods. The standard 30% deposit and 70% before shipment can work. For larger orders, I would rather see 30% deposit, 60% after the pre-shipment inspection passes, and 10% after receipt and acceptance. Not every supplier will agree to the final 10%. Still, it changes the incentives.
The 30% deposit is not random. For many orders, it covers part of the material and start-up cost, but does not make running off with the money too attractive. Payment structure is part of risk control.
Pre-shipment inspection is usually done when production is 80% to 100% complete and most goods are packed. Third-party inspection firms, such as QIMA or SGS, usually inspect under AQL sampling standards and issue a photo report within a day or two. For ordinary consumer goods in China, inspection often costs around USD 300 to 420 per man-day. Against a five-figure order, that is usually money well spent.
If you buy through Alibaba, Trade Assurance can offer real protection: escrow, refund procedures for shipment or quality problems, and a dispute window under the platform rules. Two limits matter. First, each supplier has a coverage cap, so any order amount above that cap may not be covered. Second, once you go around the platform and wire money directly to the supplier’s bank account, platform protection usually does not apply. The badge on the profile does not protect offline payment.
The rest should be settled before the order
These items are not always complicated. They still should not be left for after the dispute.
Who is legally allowed to export. Not every factory has import and export rights (进出口经营权). Many use a licensed trading agent for customs declaration. That is common. You need to know whose name appears on the customs documents, because it affects paperwork, tax refunds, customs communication, and recourse.
Incoterms. Put the trade term in the contract. For many buyers importing from China, FOB is a sensible default: the seller handles packaging, inland transport, and export clearance, and risk passes once the goods are loaded on board. EXW pushes more of the China-side transport and export clearance work onto the buyer. I would not choose it lightly for a first order.
VAT invoice. If the transaction involves export VAT refund, the supplier needs to issue a proper special VAT invoice (增值税专用发票). An ordinary invoice is not enough. Refund rates vary by product category, often from 9% to 13%. Invoice authenticity can be checked on the tax authority’s invoice verification platform at fapiao.chinatax.gov.cn.
Intellectual property. If you will send drawings, designs, branding, or packaging plans to the supplier, basic filings should be done before contact where possible. China is first-to-file for trademarks and design patents. The official fee for a CNIPA design patent is about RMB 500. For trademarks, think about the English name, Chinese name, and main variants together. Do not wait until the design is copied or the mark is squatted. I covered the full approach in the article on suppliers copying your design.
Forced labor and sanctions screening, if you import to the United States. The UFLPA creates a rebuttable presumption that goods linked to Xinjiang or listed entities may not enter the United States. By early 2025, the relevant entity list had reached 144 entities, and CBP detentions under the law had exceeded one billion dollars in shipment value. Before placing the order, screen at least the direct supplier against the list then in force. For high-risk categories, trace one or two tiers upstream.
What these checks cost
The full checklist is usually cheaper than buyers expect. Business license and company registry checks can be done for free. Enforcement and judgment searches are also free. A bilingual contract and arbitration clause can be built once by a lawyer and reused with care. The official fee for a design patent is about RMB 500. A normal inspection may cost three or four hundred dollars. For a first order, doing this properly is often under USD 2,000. Later, with templates and a process, it costs less.
Cleaning up after a wrong payment, defective shipment, or mismatched legal entity costs far more. And sometimes there is no clean-up.
The client at the start had almost no enforceable path left. The contract party was unclear. There was no chop. The receiving account was offshore. The company that got the money was not the supplier he thought he was paying. We could send a demand letter (催告函). We could discuss a police report. But the best moment to protect him had already passed.
Supplier verification is boring. Its payoff is usually invisible, because the bad result simply does not happen. That is exactly why people skip it. My advice is simple: don’t. Do it before the wire, not after.
If you are about to place a first order with a Chinese supplier and want someone to review the contract, entity, and payment terms before the deposit goes out, contact me. A pre-payment review usually costs only a small part of cleaning up the dispute later.
This article is part of the “China Supply Chain Disputes: What Every Buyer Should Know” series. Related reading: That Contract Clause You Ignored Could Cost You Everything and Arbitration in China Isn’t as Scary as You Think.