When you source from China you will deal with one of three types of counterpart: a factory that makes the product, a trading company that resells it, or a sourcing agent who represents you. Each has a place. Factories offer the lowest unit price and direct control, trading companies offer flexibility and service, and agents offer representation on the ground. The right choice depends on your order size, product complexity and how much you want to manage yourself.
Key takeaways
- Factories offer the best unit price but usually require higher MOQs and more hands-on management from the buyer.
- Trading companies resell factory products with a markup, often 5-30%, in exchange for lower MOQs, consolidation and smoother communication.
- Sourcing agents are paid by you, typically a 5-10% commission or a fixed fee, and should be transparent about factory prices.
- Many suppliers on Alibaba that call themselves "manufacturers" are trading companies; the business licence and a factory audit reveal the truth.
- A trading company is not a bad thing; hiding that you are one is the red flag.
What are the three types of supplier?
Factory (manufacturer)
A factory owns production lines, employs workers and holds the equipment for a product category. Many are concentrated in industrial clusters: electronics in Shenzhen and Dongguan, furniture in Foshan, textiles in Shaoxing and Keqiao, small commodities around Yiwu, and lighting in Zhongshan. Factories increasingly sell directly to foreign buyers through Alibaba, Made-in-China and the Canton Fair.
Trading company
A trading company buys from one or several factories and sells to overseas clients. It typically handles export paperwork, English communication, consolidation of several products and sometimes quality control. Some specialise in one category and know their factories well; others are generalists.
Sourcing agent
An agent acts on your behalf: finding suppliers, negotiating, checking quality and coordinating logistics. The agent does not own the goods. In theory the agent's interest is aligned with yours because you pay the fee. In practice, it is worth checking that the agent is not also receiving commissions from factories. Read when to hire a sourcing agent in China for a decision guide.
Comparison table: factory vs trading company vs agent
| Criteria | Factory | Trading company | Sourcing agent |
|---|
| Who they work for | Themselves | Themselves | You |
| How they earn money | Margin on production | Markup on resale (often 5-30%) | Commission (often 5-10%) or fixed fees |
| Typical MOQ | Higher | Lower and more flexible | Depends on chosen factories |
| Unit price | Lowest | Higher | Factory price plus fee |
| Product range | One category | Wide, multi-category | Any |
| Technical expertise | High on own process | Varies | Varies by agent |
| Transparency on manufacturer | Full | Often limited | Should be full |
| Best for | Large, repeat, single-category orders | Small or mixed orders | Buyers needing representation in China |
How do you tell a factory from a trading company?
Many trading companies present themselves as manufacturers, especially on B2B platforms. Use these checks:
- Ask for the business licence (营业执照) and verify it on China's National Enterprise Credit Information Publicity System. Look at the business scope: manufacturing companies usually mention production (生产) of specific goods.
- Compare addresses. A registered office in a city-centre tower with no industrial address is a trading signal.
- Request a live video call walking through the production line, not a pre-recorded video.
- Ask technical questions about tooling, raw material suppliers, daily capacity and lead time per process. Factories answer precisely; traders often need to "check".
- Look at the product range. A supplier selling phone cases, garden furniture and pet beds is almost certainly a trading company.
- Book a factory audit before a large order. It typically costs a few hundred dollars and confirms ownership, capacity and working conditions.
Our full checklist is in how to verify a Chinese supplier and avoid scams.
When should you buy directly from a factory?
Buying direct makes sense when:
- Your order is large enough to meet the factory's MOQ comfortably (often 500-5,000 units depending on the product)
- You plan to reorder the same product regularly
- You need customisation such as private label, custom moulds or specific materials
- You want to control quality and costs at the source
The trade-off is management time. Factories expect clear specifications and may deprioritise small buyers during peak season, particularly before Chinese New Year and in the autumn rush before Western holidays.
When is a trading company the smarter choice?
Trading companies are often underestimated. They are a good fit when:
- You want to buy 10 different products in small quantities and ship them in one container or one LCL consignment
- Your quantities are below factory MOQs
- You value English-speaking service and quick replies
- The product is commoditised and the factory makes little difference to quality
The key is honesty. A trading company that says it is a trading company, shows its supplier relationships and offers inspection is a legitimate partner. One that claims to own a factory it does not own is a warning sign about everything else it tells you.
When do you need a sourcing agent?
An agent is useful when you need someone physically present in China: visiting factories, checking samples, buying at Yiwu market or on 1688, or resolving a production problem. Agents are also helpful when sourcing from domestic platforms where suppliers rarely speak English. Fee models vary (commission, fixed fee, hybrid), and we compare them in how much a China sourcing consultant costs.
Watch for agents who refuse to share factory names or invoices, push you to a single supplier, or quote suspiciously low commissions. These can indicate hidden payments from factories.
A practical decision framework
| Your situation | Recommended counterpart |
|---|
| First test order under €3,000, simple product | Trading company or Alibaba supplier with Trade Assurance |
| Mixed products for a Shopify or Amazon store | Trading company or agent with consolidation |
| Single product, 1,000+ units, reorders planned | Factory, verified by audit |
| Custom product with tooling | Factory, possibly with a consultant or engineer |
| Buying in Yiwu market or on 1688 | Local agent on commission |
| Large, regulated or technical project | Factory plus consultant or QC partner |
Can one supplier be several of these at once?
Yes, and this is common in China. Many factories run an export department that also resells products from neighbouring factories, effectively acting as a trading company for items outside their own line. Some agents own a small stake in a factory. Some trading companies hold exclusive agreements with one manufacturer and behave almost like its sales arm.
What matters is which role the supplier plays for your specific product. Ask directly: "Is this item produced in your own facility, or by a partner?" A good supplier will answer clearly, and you can then decide whether the convenience of one counterpart outweighs a small markup. If a factory subcontracts your product, insist that the subcontractor is named in the contract and included in inspections.
How Cina helps
Cina's supplier directory lets you search more than 41,000 Chinese suppliers by product and region, so you can build a shortlist of factories and trading companies before contacting them. The sourcing and supplier verification guide explains how to read a business licence and spot a trader posing as a factory, and the directories list sourcing agents and freight forwarders when you need help on the ground. See the Cina resources for the full set of guides and checklists.
Conclusion
Factories, trading companies and agents are tools for different jobs, not good or bad choices in themselves. Match the counterpart to your order size, product range and need for presence in China, and always verify what a supplier claims to be. Transparency, more than the label, is what makes a supplier trustworthy.
