The registered capital in China regards the total official investment amount that have been invested in the company to set up or grow a limited entity. The registered capital is a tool of governments to protect the market, creditors, workers, suppliers and any creditor of a limited company from financial risks. By requiring a limited company to invest money in a company, it ensures the limited entity has enough liquidity to be able to be financially responsible.
Manufacturer grows means more investment
It also means that it also requires the company to invest more money in the limited company if the liabilities increase to grow the company. Referring to liabilities such as a bigger factory plant, production employees, resources such as electricity/Gas etc. If a factory would become bigger, that would automatically means that the company will be required to invest a higher amount into the company. When this occurs, the registered capital will increase.
High/low registered capital
In addition to the above, having a low registered capital would mean that the company did not have grown by a certain size that requires investment a higher amount into the limited company. When there is a high registered capital amount we would allow ourselves to conclude that this company gained a bigger size and therefore was required to increase the registered capital.
Registered capital for sourcing in China
When working for our clients, we source factories throughout whole China from our office. We source initially first online. However, it is common that companies are creating a better or different image of their company online than they actually are. In China, this is more often found than in other countries. Especially compared to for example Europe where everything is quite transparent. Therefore, we use certain tools and look for certain characteristics online which can say something about a company from online and from distance. Characteristics which are transparent and more trustable.
First selection of factories
In a sourcing process when looking for suitable factories online, the registered capital is one of multiple characteristics we look for. These characteristics makes us able to estimate the size of the company. It helps to make a fair judgement in an early stage of the research about if the factory size is what we are looking for. In addition, to be able to make a selection of factories which we will further investigate.
To proceed to a second phase of the sourcing process we will need to base our selection of trustable factors and characteristics. The registered capital is one of those trustable characteristics which makes us able to judge a manufacturer from distance.