PPE Part 3: Does the Chinese seller actually have the ability to export the PPE out of China?

Insider’s Guide: How to buy PPE from China during Covid-19 pandemic.

PPE Part 3: Does the Chinese seller actually have the ability to export the PPE out of China?

A growing number of people are looking into buying PPE from China for supply as the world scrambles to source equipment during the Covid-19 pandemic. Confirm that your supplier can actually export the PPE out of China.

Introduction to our series on buying PPE from China during the Covid-19 pandemic.

A growing number of buyers are looking to China for supply as the world scrambles to source personal protective equipment during the Covid-19 pandemic.

China sourcing was never easy, but the sourcing game has been taken to a whole new level of complexity as the pandemic turns the supply chain upside down.  A totally new set of dangers now exist on top of the common pitfalls that have plagued Chinese supply chains for decades.

In this series of blog posts and video tutorials, the author will walk the reader thru 6 essential steps for safely sourcing PPE from China.

Safely source PPE from China: 6 Steps

  • Is the seller a real company? Avoid the scams
  • If yes, are they making the products you actually want?
  • If yes, can this supplier export out of China to you?
  • If yes, can you import into your county?
  • Does it still make economic sense after factoring in the costs of air or sea transportation?
  • If the goods arrive in your country’s port, how to ensure they make it to your door?

Before we explore the steps in detail, let’s first confirm these articles are right for you as the reader.

Target Audience for this article on how to buy PPE from China during the Covid-19 pandemic.

In my consulting practice during the past few months, I have found that the potential clients fall into 3 categories.

This series of articles is written for readers who fall into Groups 2 and 3. If you fall into group 1, shame on you and consider the arrest of this joker who horded masks in NYC before you make your next move.

Insider’s Guide:  How to buy PPE from China during Covid-19 pandemic.

Part 3:  Does the Chinese seller actually have the ability to export the PPE out of China?

Key Steps:

  1. Is the seller a real company? Avoid the scams
  2. If yes, are they making the products you actually want?
  3. If yes, can this supplier export out of China to you?
  4. If yes, can you import into your county?
  5. Does it still make economic sense after factoring in the costs of air or sea transportation?
  6. If the goods arrive in your country’s port, how to ensure they make it to your door?

Step Three Explained in Detail:  Problems getting PPE past Chinese outbound customs
(confirm that your supplier can actually export the PPE out of China)

In step one (link) we covered how to avoid scams when sourcing PPE during the pandemic.  Now let’s explore how to confirm if the supplier you found can really make the products you want to buy.

In step two (link) we explored how to confirm if the supplier you found can really make the products you want to buy.

In step three we talk about a dangerous assumption.  Don’t assume it will be easy for your supplier to even ship the PPE out of China.

Exporting PPE is easy. Importing PPE is the hard part, right?

You avoided the scammers and found a good supplier who can make the PPE you urgently need. The products passed your outbound inspection and are ready to ship. Now it should be a piece of cake to get the products out of China, right?  In the “good old days” before the pandemic, I would answer “probably yes”.  But now, based on the realities of exporting PPE out of China in the middle of the pandemic, I have to reply “probably not, unless you are very careful.”   Here is a look at the common problems and some solutions.

Problem 1:  Chinese customs authority won’t release the shipment out of China

In the pre-pandemic world, buyers were more worried about how to get the goods into their target country, rather than how to get it out of China.  Given China’s reputation for counterfeits and low-quality products, you shouldn’t be blamed for making the assumption that China customs doesn’t pay much attention to what gets shipped out.

10 to 15 years ago that was very much the case. But in the past decade, China has taken aggressive measures to monitor and manage the flow of goods leaving China.  Especially in strategic industries where poor-quality exports cause China to lose face.

PPE very much falls into that category.  To get PPE out of China, you and your suppliers need to jump thru some hoops to confirm the seller has been approved by Beijing to deal in AND export the given class of PPE.   In the US for example, if you own a factory, you can make pretty much any product line you wish. In China, the opposite is true.  And you can rest assured the Chinese port authority will check on them.  You would be wise to do the same in advance.

 

Solution:  Verify the Ability to Export

  • First off, is the entity a registered business in good standing? A Chinese individual can’t just go to the post office and ship you 100,000 masks.
  • Second, does that entity have a scope of business that includes the specific product to be exported? A manufacturer of face masks does not automatically have the right to ship ventilators for example.
  • Third, does that entity have import-export rights? In China, the right to manufacture or sell a product is separate from the right to export that product out of China.

 

More Problems: Random Enforcement

Even if the seller has a track record of exporting a given PPE to your target destination, it is not a guarantee that your border clearance will be smooth.

The problem is that enforcement of the rules is sporadic and interpretation varies from port to port, even withing the same city.  (The big Chinese cities have multiple ports). Also, know that China is getting stricter in their enforcement of export restrictions and there is no concept of “grandfather clause” in China. If the rules are changed tonight, goods “in the pipeline” today don’t get a free pass tomorrow!

Problem 2:  Chinese authorities commandeer the order or won’t allow shipment to your target destination.

At the risk of over simplification, the Trump-China trade war didn’t make any friends for American importers among the Chinese customs authority.  Also, as China fights the global PR battle of the pandemic, you can bet that orders of PPE are being directed to where China gains the most goodwill and good PR.

“Friends” of China get first dibs!  Good luck trying to export to a country that recognizes Taiwan rather than China.

I’m also worried that if the virus re-emerges in mainland China, exports will be redirected for domestic needs.

Solution:  

This won’t eliminate the risk, but you can mitigate your exposure to the above problems if you work with an exporter that has a proven track record.  Don’t forget to actually verify that track record.

 

Pro Tip:

Consider using platforms like Tradesparq.com to review import-export data at company level to check to see if exports are really taking place from this seller to your market.

Problem 3: Your order goes to another buyer at last minute.

Chinese suppliers are notorious for redirecting orders if they can make a bit more on the transaction.  As the demand and market price for PPE fluctuates daily, it is not uncommon for a seller to accept your order, get your deposit, run production (with your money!) then see if they can find a higher bidder.  The stock ships to the highest bidder and you wait for the next product run. Good luck getting your money back unless you have a solid contract in place.

 

Solution: 

In normal times, the following tools offer ample protection in most cases:

    1. Have a bilingual contract in place with pre-agreed penalties for delays and quality issues.
    2. Structure payment terms to protect the buyer by never paying too much upfront.

But these are not normal times!  As the world scrambles to find PPE, Chinese suppliers are commanding 50 to even 100% upfront.  Here are two work arounds for the Covid-19 era:

  1. Don’t have just any old contract, have a well-written bilingual contract that protects your interests in a Chinese court of law.
  2. Another tool is to work with a 3rd party, like our sister company PassageMaker ( PSSchina.com) that has a warehouse in China.  Generally, suppliers that originally ask for 100% of front will accept 50% upfront to start the order and 50% at the end of production, after inspection and before the goods leave China.

So, the goods are shipped to the 3rd party for inspection.  When the inspection is complete, the buyer transfers funds to the supplier and the 3rd party exports the goods out of China.

The seller likes the process because they get paid before the goods leave China, so they have next to no risk of buyer default.

The buyer likes the process because the goods are in the possession of the 3rd party and the seller has limited ability to cause headaches once they have been paid and essentially removed from the equation.

 

Pro Tip:

If you use a 3rd party warehouse/shipper, make absolutely sure they suitable export licensing and are in a stable financial position.

Related Content:

Articles about how to set up good supplier contracts when buying PEE from China during Covid-19.

Short Videos about how to set up good supplier contracts when buying PEE from China during Covid-19:

Articles about setting up payment terms that protect your interests.

Short Videos about setting up payment terms that protect your interests.

Full Tutorials covering supplier contracts and payment terms:

About the Author: Michael J. Bellamy

About the Author: Michael J. Bellamy

Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses.  Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.

A featured presenter on China issues at seminars, trade shows and corporate events across the globe.

Learn more about Mike and AsiaBridge Law at
https://www.asiabridgelaw.com/business-advisory-services/

Mike is the author of “The Essential Reference Guide to China Sourcing
(available on Amazon).

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