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How to Avoid China Fraud with Basic Due Diligence

by Matt Slater October 15, 2013

How to Avoid China Fraud with Basic Due Diligence

Avoiding China fraud can often be achieved simply by carrying out basic research on a Chinese company before committing to doing business with them and before any financial transactions have taken place.

Just as in any other country, fraudsters and scammers exist in China and are only too willing to deceive you and your company.

In this article we introduce some of the common types of China fraud and explain some techniques you can employ to protect your business.

Common Types of China Fraud

There are of course as many types of scams and fraud as there are scammers and fraudsters, but there are some common patterns in the types of fraud that come out of China.

We’ve listed some of the most common types of China fraud here. Remember, though, that fraud is hugely varied, and it’s always wise to perform due diligence checks.

Cheap Products Scam

This scam has become increasingly common with the rise of small traders on websites like eBay and Aliexpress. Traders receive or come across tantalizing offers of goods (most often branded electronics) at fantastic prices from companies in China.

The prices are of course just that – a fantasy. In these scams, there is no product and never will be. The fraudulent “company” might not exist at all, and may be an individual working alone.

These scams can often be avoided by simply remembering that if something seems too good to be true, it is too good to be true.

Visa Scam

The visa scam is perhaps less financially damaging than some other forms of scam, but can cause legal and reputation issues for the victim company. The way it works is that an individual or “company” based in China contacts a company in another country expressing interest in doing business with them.

The fraudsters often express interest in visiting the company or coming to view their products in person. This requires a visa from the victim company’s country, the fraudsters explain, and they need an invitation letter from the victim company in order to get the visa.

The fraudsters are of course only interested in acquiring the invitation letter so that they can get into the target country. This may be for their own purposes, or as part of a fraudulent visa acquisition service they are offering to people in China. The victim company has unwittingly played a role in this process.

There might not be immediate financial implications for the victim company, but there could be repercussions in terms of legal fallout or damage to the victim company’s reputation if this comes to light at a later date.

China Visit Scam

This scam is also known as the “large order scam” or “Guilin scam”. It begins with a “company” or individual expressing interest in making an order or purchase from the victim’s company.

The potential order will be very large or otherwise attractive. The only catch, the fraudsters explain, is that the victim needs to come to China to sort out paperwork for the order to proceed.

Upon arrival in China, the victim company is told that they need to put on expensive banquets, provide gifts and make various administration payments in order for things to run smoothly with the order.

All of this may appear worthwhile because the promised order is large enough to soak up the expense. Pressure in the form of “this is how business is done in China” may be applied.

After everything has been “arranged”, of course, the fraudsters disappear and no order is ever made.

Other Scams

We have also written articles here, here and here about various different types of China fraud.

Use Basic Due Diligence to Avoid China Fraud

Is it Plausible?

Some China fraud is so blatant that it can be avoided by simply thinking through the scenario a little more carefully, and not taking it at face value.

If on consideration the communications you’ve had with a Chinese company still seem to suggest a plausible and reasonable situation, the next step is to try and determine whether or not such a company actually exists.

If no such company seems to be registered in China, then you can assume that you are dealing with fraud.

Avoid Scams that Use False Details

A more insidious kind of fraud, though, is one where the scammers use the details of a legitimate company and provide these to the victim when asked for more identification or verification. This kind of fraud is a little trickier to identify, because looking up the details given will indeed suggest that there is a real company behind it.

One potential option in these scenarios is to independently gather information about the company specified, and then use the information gleaned during that research to make fresh contact with the company.

What we mean by fresh contact is abandoning existing contact with the company in question (such previous as email correspondence or telephone calls), and trying to establish contact using only verifiable information obtained when researching the company independently.

This way, if you were dealing with a legitimate company, you will simply have re-established communication with them and correspondence can proceed once more.

If, on establishing fresh contact, it turns out that the company is unaware of any previous contact, you can assume that your previous communication with the “company” was actually with an untrustworthy third party.

Other Verification Methods

We have prepared many articles on verifying Chinese companies, but here are a few good resources to get you started (and help you avoid China fraud!):

Avoid China Fraud with China Checkup

Our company verification reports help you determine whether a Chinese company is legitimate and allows you to assess whether or not you want to do business with them.

We make the information gathering process quick, convenient and efficient, but leave the decision making to you.

See Also




Matt Slater
Matt Slater

Author

Hi there, I'm a British-Australian Engineer and Entrepreneur, based in Brisbane, Australia.

Frustrated by the scarcity of concise, high-quality and timely information about Chinese companies, I founded China Checkup whilst living in Shanghai in 2013.
My team are proud that China Checkup's company verification reports have now helped thousands of clients from all corners of the world to do business in China safely.

Connect with me:
info@chinacheckup.com | LinkedIn profile

 


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