How to Choose A Sourcing Agent in China ?

1. Team work instead of one single person

Team work is your only choice. The person you collaborate with must be an excellent one. If not, it will just waste your time and money.

But no matter how professional or friendly he is, his time is limited. In addition, such an excellent talent is also wanted by many other customers, which means he can’t totally focus on the cooperation with you.

2. Only one account

An account, you send money to the only account, which is the designated account of your SOURCING COMPANY, and then the money will remit to your different suppliers. If your sourcing agent is unable to deal with it, then they are so incompetent.

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Imagine that if each different supplier requires you to send money separately, this will be painful and risky. The basic requirement of these accounts for accepting foreign exchange is that the account is in good condition. However, not every Chinese supplier has the ability to handle the foreign exchange issues. Those who are capable are relatively large suppliers. But will such suppliers match up with you?

In recent years, China has strengthened its control over foreign exchange, which involves accounting issues, tax issues, and China’s foreign exchange money laundering issues.

In particular, the issue of hacker attacks needs to be noted. If your provider does not have the awareness of email security, this will generate a high risk, while you are completely the bearer of the risk.

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3. More than one account

What you need is a company entity. Because sourcing in China requires signing contracts with suppliers. Physical companies are the best choice. When there is a problem, the Chinese law will provide protection.

Both parties of the contract are Chinese companies, so problems can be solved properly according to the Chinese laws.

If you sign a contract as a foreign company with a Chinese company, it will be more difficult to solve the problems. Many professional foreign companies generally have subcompanies in Hong Kong. If necessary, you can also sign a cooperation agreement with their Hong Kong branch. After all, the laws of Hong Kong are compatible with most countries.

Physical companies can provide a lot of practical help, such as sending and receiving express delivery, supplier visits, customer hospitality, etc.

4. Transportation fee

Choose asourcing agent who is close to your supplier to reduce travel expenses, because all expenses will be recorded on your bill.

The sending and receiving of small items is just a small case. The cost of express delivery in general cities is quite similar.

5. A specialized purchasing department

Purchasing needs to be supervised to stop salesperson from receiving kickbacks secretly and privately.

Purchasing can balance the ups and downs of the cycle, placing orders during the off-season of the factory and consuming inventory during the peak season. Optimize the procurement plan.

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Why must a sourcing company have a subcompany in Hong Kong ?

Hong Kong is an international and diverse city, with easy access for people and goods.

1. Finance and economy

  • The third largest financial center in the world.
  • Having a highly developed free market economy, which is characterized by low taxation, almost free port trade and a sound international financial market.
  • Having the highest degree of economic freedom in the world. ( according to the “Economic Freedom Index” )
  • Economy ruled by active non-interventionism and highly dependent on international trade and finance.

Coupled with the use of modern English/Western business methods and technologies, it ensures that foreign trade, investment and recruitment opportunities are properly increased. Prices and wages in Hong Kong are relatively flexible. And they are dependent on the performance and stability of the Hong Kong economy.

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2. Legal System

  • Under the situation of one country and two systems, Hong Kong mostly preserved its own legal system developed under British rule. And it is distinct from Mainland China.
  • A common law: based on a combination of English common law and local legislation codified in the Laws of Hong Kong.

From the perspective of sourcing companies, they need a Hong Kong company, especially a Hong Kong account to regulate the foreign currency they receive because:

       (1) Foreign currency and exchange is strictly controlled in China. There are two types of accounts when it’s investment related, registered capital account and current trade account.

      ① Current account items :

 Transactional items

Payments and receipts related to commodity transactions, service provision and other ordinary fund transfers that occur in the daily business process.

       ② Capital account items:

  Items that increase or decrease an entity’s debt or equity through capital inflows or outflows include direct investment, various forms of loans, and securities investments.

For any foreign currency and their transactions, company need to report to the bank in time to announce the nature of the business transaction. Besides, they may need to use the standard codes defined by the State Administration of Foreign Exchange (SAFE) for such reports.

When you use foreign currency and convert it to RMB to pay the local expenses like salary, local supplier’s payment. You must basically submit supporting documents to show that the conversion is for business operations.

Another thing needs to be noted is withholding tax, especially when you pay the overseas provider for he services. And you must go to the bank and pay the withholding tax on behalf of the foreign seller.

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Now under the rules of CRS, opening a Hong Kong company and operating a Hong Kong account, this requires a special person to deal with. This is a reflection of the strength of your sourcing company.