Importing from China: Sourcing, Verification, Incoterms and Payment

Three channels cover most sourcing from China. Online marketplaces — Alibaba.com for export-oriented factories and trading companies, 1688.com for the domestic wholesale market in Chinese, Global Sources and Made-in-China.com as smaller alternatives — give the widest reach and the least certainty about who is behind a listing. Trade fairs, above all the Canton Fair in Guangzhou each April and October, put buyers in front of manufacturers with samples on the table and are the fastest way to compare dozens of suppliers in one product category. Sourcing agents and buying offices, paid by commission or fee, supply local knowledge and factory access for buyers without their own presence.

Industrial clusters matter more than provinces. Electronics and consumer hardware concentrate in Shenzhen and Dongguan; lighting in Zhongshan; furniture in Foshan; textiles and garments in Guangdong, Zhejiang and Jiangsu; small commodities in Yiwu; machinery in Jiangsu and Shandong; ceramics in Jingdezhen and Chaozhou. A supplier inside the cluster has the component suppliers, the tooling shops and the skilled labour nearby; one outside it usually buys from those inside and adds a margin.

Every registered Chinese company has a business licence (营业执照) with an 18-digit Unified Social Credit Code. The code can be checked free of charge on the National Enterprise Credit Information Publicity System (gsxt.gov.cn), which shows the registered name, legal representative, registered capital, business scope, registration date and any administrative penalties. Commercial services such as Qichacha and Tianyancha add shareholders, litigation records and affiliated companies. The registered English name on a quotation should match the Chinese licence; a mismatch is the most common sign of a middleman or a fraud.

For orders that matter, a factory audit — by the buyer, a sourcing agent or an inspection company such as SGS, Bureau Veritas, Intertek, TÜV or QIMA — confirms that the factory exists, owns the machinery it claims, holds the certifications it lists (ISO 9001, BSCI, ISO 14001, product-specific certificates) and has the capacity for the order. Audits cost a few hundred US dollars and take a day; they are cheap against a deposit lost to a non-existent factory.

Bank details are the last check. Payment should go to a company account in the licence name, never to a personal account or a differently named entity, and any change of bank details communicated by e-mail should be confirmed by telephone through a number obtained independently: payment-diversion fraud through hacked mailboxes is a well-worn pattern.

Sampling precedes any order. A pre-production sample tests the design and materials; a golden sample, signed off by both sides, becomes the reference for the inspection later. Sample fees are normal and are often credited against the first order.

Minimum order quantities (MOQ) reflect the factory's setup costs and its material purchasing; they are negotiable within limits, usually at a higher unit price. Quotations are for a specified trade term (see below) and packaging; a quotation without both is not comparable. Prices move with raw-material indices, exchange rates and the export VAT rebate the factory receives, which is why a fixed price is normally valid for a stated period only.

Incoterms 2020, published by the International Chamber of Commerce, define eleven trade terms. Four dominate China purchasing. EXW (ex works) hands the goods over at the factory gate: cheapest quotation, most work for the buyer, and problematic because export clearance is formally the buyer's job even though only the Chinese seller can file it. FOB (free on board) is the workhorse: the seller delivers cleared for export on board the vessel at the named Chinese port, the buyer arranges and pays for ocean freight and everything after — it separates the seller's price from the freight market and lets the buyer's forwarder control the shipment. CIF (cost, insurance and freight) has the seller pay freight and minimum insurance to the destination port, which is convenient but leaves the buyer with a carrier chosen by the seller and destination charges that can be inflated. DDP (delivered duty paid) puts the whole chain, including import duty, on the seller; it is the simplest for a small buyer and the least transparent on cost.

Risk passes at the point the term names, not where the money is paid. Under FOB, damage after loading is the buyer's problem — which is why cargo insurance belongs to the buyer under FOB and EXW.

The standard for a first order is a telegraphic transfer (T/T) of 30 % on order and 70 % against a copy of the bill of lading, which proves the goods have shipped. Larger or riskier orders use a letter of credit, in which the buyer's bank pays against documents that prove shipment and conformity; L/Cs cost fees and require precise documents but protect both sides. Marketplace escrow (Alibaba Trade Assurance) holds funds until the buyer confirms receipt and is workable for smaller amounts. Open account — payment after delivery — is granted only to established buyers.

Currency is usually US dollars; suppliers increasingly accept renminbi (CNH) settlement, which removes their exchange-rate margin. Chinese banks apply exchange controls to incoming foreign currency on the seller's side; this does not affect the buyer but explains why sellers ask for a purchase contract and invoice with every payment.

Inspection is where the golden sample earns its keep. A pre-shipment inspection when 80–100 % of the order is produced and packed, sampled by AQL (acceptable quality limit, ISO 2859-1) at a stated inspection level and defect tolerance, is the industry norm; during-production inspections catch problems earlier on large or complex orders; a loading supervision confirms quantity and container condition. Third-party inspectors charge a few hundred dollars per man-day and report the same day with photographs.

The contract should state what happens when an inspection fails: rework at the seller's cost, re-inspection, and the buyer's right to withhold the balance. Without that clause an inspection report is information, not leverage.

Ocean freight carries most volume: full containers (FCL) for orders above roughly 15 cubic metres, consolidated less-than-container loads (LCL) below that, at a higher rate per cubic metre and with extra handling. Air freight suits high-value, low-volume and urgent goods; rail to Europe sits between the two on cost and time; express couriers handle samples and small parcels. Transit from a Chinese port to Northern Europe has been 35–45 days on the Cape of Good Hope routing used since the Red Sea disruptions and 28–35 days via Suez; to the US West Coast 15–20 days.

Lead time is production time plus shipping plus clearance at both ends. Chinese factories close for two to three weeks around Chinese New Year (late January or February) and for a week around National Day in early October; orders placed in December or September ship late. A forwarder with offices at both ends, a customs broker at destination and an HS classification agreed before shipment prevent most delays.

The importer of record is responsible for classification (HS code), valuation, origin and product compliance at destination — CE marking and REACH in the European Union, FCC and CPSC rules in the United States, and so on — regardless of what the supplier declares. Duty is assessed on the customs value (usually the transaction value plus freight and insurance in the EU; the transaction value alone in the US), and import VAT on the duty-inclusive value. Anti-dumping and countervailing duties apply to specific China-origin products and can exceed the ordinary rate many times over; they are checked by HS code before ordering, not after arrival.

Origin has become a compliance topic in its own right: US enforcement of forced-labour rules and of transshipment through third countries means that provenance documentation for China-origin goods is now part of the product file.