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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.

Foreign companies being victims of a variety of scams orchestrated by Chinese companies

In the past the Swiss Business Hub China has repeatedly witnessed a growing number of Swiss and other foreign companies being victims of a variety of scams orchestrated by Chinese companies. The methods used for such scams can be diverse and subtle; however they are easily avoidable if one is aware of them.

How do the scams work?

Caution is advised, especially if you receive unexpected delivery requests from unknown Chinese companies. It typically starts with a Swiss or other foreign company being unexpectedly contacted by a Chinese company previously totally unknown to them, who wishes to order a large amount of goods. The business proposals seem very lucrative, and it is usually agreed that 30-40% of the due amount will be paid before the delivery of the goods with the remaining 60-70% to be paid afterwards.

Furthermore, the Swiss partner is usually invited to come to China to sign the contract. However, once the contract is signed, the foreign contract partners have returned to their homeland and the products have been delivered to China, the Chinese company fails to pay the remaining 60-70%. To make matters worse, the Chinese company seems to have vanished and cannot be contacted anymore.

The experience of the Swiss Business Hub China shows that in most cases the Chinese partner was in fact not an officially registered company but rather a well disguised scam company. It is therefore not possible to take legal action against a company that never actually existed, or to retrieve the financial losses incurred.

Such scams can go both ways, meaning foreign companies can be lead to believe that they are making legitimate purchases of products at reasonably low prices. As a result, the foreign company places large orders (to secure greater discounts) to a Chinese company that seems legitimate and is willing to ship products at a minimal down payment of 20-30%. After the money is transferred to China, no products are delivered and the Chinese counterpart disappears.

What to do?

After receiving such suspicious business proposals from Chinese companies, it is crucial to get properly informed about the Chinese counterpart’s background. The following checklist is also helpful for examining how serious the Chinese partner is:

  1. Does the enquiry involve a business deal with a high volume of orders?
  2. Was your quotation accepted very quickly and without significant renegotiations or requests for a discount?
  3. Are your Chinese contacts using e-mail addresses from "Yahoo", "Hotmail", "Gmail" or other free providers?
  4. Are communications with your Chinese contacts essentially conducted via e-mail, fax and mobile phone numbers?
  5. Have you managed to reach someone on the landline number indicated by the Chinese company?
  6. Does the company have its own website?
  7. Have technical details/specifications been discussed?
  8. Have you received information about the precise intended use or the end user of your products?

If the answer to questions 1-4 above is Yes and the answer to questions 5-8 is No, this is a good indication that the business intentions of the Chinese company are not serious.

Further recommendations

If you are contacted by Chinese companies which were previously unknown to you, our recommendation is to never make a pre-payment to the Chinese side. Make sure you get all documents you are shown to “prove authenticity” verified by the competent authority, as fakes are easy to make but difficult to recognize by foreign non-experts.

If the Chinese counterpart invites you to come to China for a contract signature, we would suggest that you ask the Chinese counterpart to come to Switzerland to sign the contract instead. The incurred travelling costs could be deducted from the first payment of the order. If there is no response to this proposal from the Chinese side, it is a pretty sure sign that there is no real interest in a legitimate business relationship.

Do you have more questions?

Further information on the topic can be found in the information sheet below. Do not hesitate to contact our China consultant Daniel Bont  or the Swiss Business Hub China.

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