How Chinese trading companies actually make their money

A Chinese trading company usually owns no factory. It buys from one and sells to you. On the same factory order its price can be 50% or more above what the factory quotes a buyer directly.

That is not a scandal. It is a structure, and it is worth understanding, because the money is not being taken from you by trickery. It is being paid for work that genuinely has to happen somewhere.

The factory cannot easily sell to you itself

Exporting from China is not a matter of putting a box on a ship. To export in its own name and reclaim value-added tax, a company has to hold foreign trade operator registration, register with customs, produce a declaration that matches the commercial invoice, and file for the rebate.

Then there is the part most buyers never hear about. The export has to be paid for through the banking system, and on time. Under the current rules, if the foreign currency is not collected by 30 April of the following year, the tax authority can require the company to repay the rebate it already received. Late payment is not a slap on the wrist; it is a clawback.

So a factory that makes chairs faces a choice. It can build a department of customs clerks, documentation staff and foreign-exchange paperwork, or it can sell to a trading company at a lower price and let someone else carry all of that. Most choose the second. That discount is the first source of the trading company's margin.

The tax rebate belongs to whoever exports in their own name

This is the least understood part, and it explains why a trading company insists on being the seller rather than a paid agent.

Chinese export VAT treatment runs on two routes. A production enterprise exporting goods it made itself uses the “exempt, offset, refund” method. A trading company, which produces nothing, uses “exempt, refund”. The methods differ, but both are tied to the same condition: the exporter must recognise the sale of the goods as its own revenue, accounted for under the accounting rules.

An agent that books only a service commission does not meet that condition. It cannot claim the rebate. That single rule is why the trading company buys the goods, owns them for a moment, and sells them on — rather than simply introducing you to a factory and invoicing you for the introduction.

Customs, currency and documents are real work

Each export needs a customs declaration, a bill of lading, an invoice matching the declaration, and a foreign-exchange receipt matching the invoice. The tax authority cross-checks the rebate claim against customs data and against the foreign-exchange records. When the three do not line up, the rebate stops.

A buyer sitting in Texas cannot easily produce that paper trail from Texas, and cannot easily fix it when it goes wrong. A trading company does it every week and knows what a mismatched declaration costs.

Why the margin is larger on custom work than on standard products

This is the part that matters most to a buyer, and it is the reason the percentage is not a fixed markup.

On a standard product — a chair that appears in a catalogue, that three other suppliers also sell — the buyer can check the price against the market. The markup has to stay thin, because a thinner one exists somewhere and the buyer will find it.

On a custom product, built to your drawing or to a photograph you sent, there is no market price to check against. Nothing identical exists to compare with. The buyer cannot tell what the factory charged, and usually cannot tell which factory it even was.

That is where the large margin lives: not in the goods, but in the absence of a reference price.

It also explains why the work is worth doing properly. A custom order has no fallback. If the sample is wrong or the factory turns out to be a trading company itself, there is no catalogue price to fall back on and no second supplier holding stock.

What a buyer can actually check

• Who signs the contract. If the contract, the invoice and the customs declaration all name a company that does not manufacture anything, you are paying a trading margin. That is not automatically wrong — but you should know it, because it changes who is responsible when something goes wrong.
• What is at the address. A trading company's registered address is an office, and there is nothing dishonest about that. The question worth answering is whether the company you are dealing with runs the production line it is quoting you for, or buys from someone who does.
• On custom work, have the factory checked rather than the price. Price comparison is close to useless when there is no reference price. What can be established is whether the factory exists, whether the line runs, and whether the people you are talking to are the people who make the product.

Where we sit in this

We are not a trading company. We do not buy and resell, we do not add a margin to your goods, and we do not take commission from any factory. One flat fee, agreed in writing, paid by the buyer.

That is a deliberate choice rather than a marketing position. The question a buyer has to answer is whether the company telling them about a factory has anything to gain from the answer. The company checking the factory should not be the company that profits from your answer.