China: the gap between a price and a shipment

China exports through two very different kinds of counterparty. A factory owns a production line and a business licence that names what it manufactures. A trading company owns a WeChat account and a relationship with several factories. Both will answer your enquiry within an hour, and both will send photographs of a plant.

The difference matters when something goes wrong. A factory can re-run a batch. A trading company has to persuade someone else to re-run it, at its own cost, with no leverage. The check is not difficult: the business licence shows the registered scope of business, the export licence shows whether the entity can ship in its own name, and the bank account on the proforma has to carry the same name as the licence. If the beneficiary name differs from the seller name, that is not a detail, that is the whole question.

We do not refuse to work with trading companies. For small quantities or for an assortment across several plants they are often the right answer. We refuse to work with one that presents itself as a factory.

The commonest failure in this corridor is not fraud. It is that the buyer and the seller each had a clear picture in mind and the pictures were different. A purchase order that says “machine, 50 kW, 380 V” leaves the motor brand, the controller, the duty cycle, the finish, the spares pack and the manual language entirely to the seller, and the seller will resolve every one of them in the direction of cost.

We write the specification before we ask for a price, not after. For equipment that means the drive and controller by make, the electrical standard, the certification mark required at destination, the voltage and frequency, the spares pack and the commissioning arrangement. For materials it means grade, dimension and tolerance against a named standard, the mill or batch certificate, the surface finish and the pack. For anything that has an appearance, it means a sealed reference sample held by both sides.

Once the specification exists, three quotes against it are comparable and a fourth supplier can be added without starting again.

Production is inspected before the goods are paid for in full and before they are loaded. For a commodity that means a sampling plan against the specification and a dimensional check. For equipment it means a witnessed run. For everything it means photographs of the goods, the carton, the pallet and the loaded container, taken by someone who is not the seller.

Wood packaging has to be heat treated and marked under ISPM 15, and a container that arrives with untreated pallets can be refused at the destination port at the importer’s expense. That check belongs at loading, not at arrival.

A full container is simpler and cheaper per unit, but a first order rarely fills one. We consolidate several suppliers into one container at the port of loading, which keeps a trial order on full container economics and produces one bill of lading instead of four. The trade-off is time: consolidation adds a week to the schedule, and that week has to be in the plan rather than discovered.

The document set is where the money is actually lost. The HS code decides the duty rate at destination and it is the importer who is liable for a wrong one, not the Chinese seller who typed it. The certificate of origin decides whether a preference applies. The packing list has to agree with the invoice, the bill of lading and the physical container, down to the carton count, because customs anywhere in the world resolves a discrepancy by inspecting.

We do not prepay in full, and we do not ask a buyer to. A deposit releases production, a second instalment falls due against inspection and the final balance against the document set. Where the value justifies the bank charges, an irrevocable letter of credit does the same job with the bank holding the trigger instead of us.

Every stage is tied to something observable. “Fifty per cent on 15 March” pays for a date. “Fifty per cent against a passed inspection report” pays for goods.