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China: Treat Unexpected Business Proposals with Caution

The rate of reported business scams from China has increased again lately. Swiss companies are also affected. How do the scams work and what can you do to prevent being scammed?

shanghai

This article will provide you with a short overview on the current situation in China. Please find more detailed information and examples as well as a list of fraudulent companies ready to download at the end of this article.

How it looks like – scheme of scams & frauds

  1. Most frauds and scams in Northern China came from Xi'an City, Shaanxi Province and Luoyang City, Henan Province with general company names, such as "XXX Material Co., Ltd." or "XXX Import & Export Co., Ltd." etc. No business address has been given or it is located in a residential area.
     
  2. Most fraud companies are newly registered with the Chinese Authority with very simple information and no business history. Please be aware that it is not difficult to have a fake registered capital registered with the regulatory authorities by just going through an agent company (e.g. during the registration procedure, the agent will provide certain amount of money under the Chinese company's name, later on they withdraw the money from the account. The agent makes profit by offering this kind of services).
     
  3. Most fraud companies have a very wide business scope from big equipment to small stuff which covers all kinds of industries from machinery, construction, electronic, chemical, medical device to daily products, food & beverage etc. It sounds like an "almighty company" which buys anything and sells anything. However, this kind of companies have no brands of their own, no stores, nor other offices, as they claimed that they are "traders". It is abnormal to appear like a huge company but with nothing in hands.

How it works – versions of scams & frauds

  1. An unknown Chinese company starts to contact a foreign company by email, in order to check out their products. Then, after just a few exchanges by email and without any meetings and sample test, they place a big order to the foreign company. They will sound very trustful and be even willing to pay partially up-front. Therefore, before anyone sees any money, they obtain the foreign company’s attention. Then, due to "the Chinese procedures" or in order to "make a formal contract", they will ask the foreign company to bear / share the administration fees including registration fee, legislation consulting fee and notary fee. Furthermore, they will invite the foreign company for a site visit in China with expensive gifts and dinners paid by the foreign company.
     
  2. A Chinese company suddenly comes up from nowhere and reaches out to a foreign company for a delegation visit for “a big purchase order” without any formal discussion in advance. But most probably, their real intention is to seek for an invitation for entering Europe with suspicious reasons.
     
  3. Some Chinese swindlers reach out to a foreign company and claim that they represent “a prestigious and reputable Chinese company”. They invite the foreign company to come to China for a huge contract signing. The mixture of the above-mentioned fraudulent gimmicks would play on the foreign company in order to get the foreign company to pay a notarization fee or other administration fees, buy gifts and so on. Nobody will never ever hear again from the Chinese swindlers after the fees have been paid.

How to prevent - simple ways to check

Legal Status Check & Verification:

  • Business License
  • ID Card
  • Litigation Records
  • Foreign Trade Right
  • Special Permits
  • Land Use Rights
  • Right to Use Premises
  • IPR Ownership Certificates
  • Company Chop

Financial Status Check:

  • Creditworthiness Letter
  • Financial Statement
  • Capital Verification Report
  • Bank Account Details

Chinese Social Credit System:

  • Check the Chinese Company’s Social Credit

How we can help

If you would like to obtain more detailed information on the Chinese counterpart, we can also help by providing you with a background check. Please find below a detailed summary of the research content and the pricing. For more information, don’t hesitate to contact Daniel Bont or the Swiss Business Hub China.

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