China Sourcing Glossary: The Terms That Decide Your Price
Half of the arguments I see between overseas buyers and Chinese suppliers are not about money or quality, they are about words. Someone says FOB and means one thing, the supplier hears another, and three weeks later there is a container stuck at port with nobody agreeing who pays the last mile. This is the vocabulary that actually decides your price and your risk.
Trade terms you will see on every quote
EXW (Ex Works) means the price covers the goods sitting at the factory gate and nothing else. You arrange pickup, export paperwork, and freight. It looks cheapest on the sheet and almost never is once you add the moving parts. New buyers chase EXW quotes and then discover they cannot legally export as an overseas entity without a Chinese export agent.
FOB (Free On Board) is the default for most container and air shipments. The supplier gets the goods to the named port and loaded on the vessel, you take over from there. If your quote does not name a port, ask. FOB Shenzhen and FOB Ningbo are not the same number.
CIF (Cost, Insurance, Freight) means the supplier arranges and pays for shipping to your destination port. Convenient, and usually marked up quietly. Compare the CIF number against a FOB quote plus your own freight forwarder before you accept it.
DDP (Delivered Duty Paid) means the supplier handles everything, including your country's import duty and taxes, and delivers to your door. It is the easiest for small buyers and the most abused for valuation. Some suppliers under-declare the customs value to hit a DDP price. If customs audits, the penalty lands on you as the importer of record, not them.
Order and pricing terms
MOQ (Minimum Order Quantity) is the smallest order the factory will run. It is almost always negotiable, and the lever is not charm, it is whether the factory already has the material. A first order at half the stated MOQ is realistic if the fabric or component is in stock. If it needs a custom dye or a tooling change, expect to pay a small-lot premium instead.
Tooling / mold fee is the one-time cost to cut a new mold, die, or injection tool. It is separate from unit price. The critical question is ownership: who owns the tool after you pay for it. Get it in writing that the tool is yours, and ask where it is stored. If you ever leave the supplier, the tool is the only thing that lets you restart production elsewhere without re-paying.
Unit price breaks are quoted in tiers, usually three or four. The jumps between tiers tell you where the real cost step is. A big drop at 5,000 pieces usually means the factory switches from a manual process or a shared line to a dedicated setup. That is your target quantity if you can afford it.
Payment and production terms
T/T (Telegraphic Transfer) is a bank wire. Typical split is 30% deposit and 70% before shipment, sometimes 30/70 against a copy of the bill of lading. Anything asking for 100% upfront from a new supplier is a red flag.
L/C (Letter of Credit) is a bank-guaranteed payment released against documents. It protects both sides and costs bank fees, worth it above roughly $50,000 where trust is thin.
Lead time is production time, and it does not include shipping. Sample lead time is different again, usually 5 to 15 days. Always ask which one the supplier is quoting, because they will say "two weeks" and mean sample time when you thought it was production.
OEM vs ODM. OEM means you provide the design and they build to your spec under your brand. ODM means they have an existing design you can rebrand. ODM is faster and cheaper, and the product is not exclusive to you unless you negotiate exclusivity, which often requires volume.
Golden sample is the approved reference sample that both sides sign off on. Production is judged against it. Keep it sealed and keep the signed approval, because a dispute without a golden sample is your word against theirs.
The three terms that cause the most trouble
MOQ, tooling ownership, and DDP valuation. Get those three in writing every single time, before the deposit, and you avoid most of the expensive surprises. The rest of the vocabulary is useful, but those three are where money actually leaks.