How to avoid supplier fraud in China?

China is an unsurpassed manufacturing giant, supplying goods to all corners of the world. Although this is a country of opportunity for importers, supplier fraud in China is a reality and sellers should be on the lookout for goods from this country.

Let’s figure out how to avoid fraud with suppliers in China, and what should deceived sellers do?‍

What is supplier fraud in China?

Is the supplier deliberately deviating from the agreements? This is pure fraud.

For example, if your supplier sends goods to the buyer that don’t meet the agreed quality standards, then it is worth considering changing the supplier.

Even impersonating a supplier as a manufacturer is fraudulent. If they lie about this, they will lie about other things too.

Types of fraud with Chinese suppliers

Chinese supplier scams, ranging from petty lies to big scams, come in many forms. Listed here are the most common supplier scams in China:

• Poor quality or wrong item

Your Chinese supplier sends you poor quality products that do not meet your quality standards or do not match the samples.

Not all manufacturers in China can produce custom products. Despite their limitations, they promise too much and then fail to deliver. This is considered a scam, not a bug.

• Counterfeit goods

Counterfeits account for 3.3 % of world trade and most of these goods are made in China.

This was largely due to Chinese intellectual property (IP) laws being the first to apply. In China, trademarks are awarded to first-time applicants, not necessarily to the original owner.

This encourages unscrupulous manufacturers to create and sell products with copyright infringement.

• Supplier stops communicating

The supplier cuts off communication and disappears after receiving an advance payment or sample fee from you.

• Sudden price increase

The supplier arbitrarily increases the price of the product after you send him a deposit. Or the supplier raises the price of the same items in the next order for no good reason (for example, due to an increase in the cost of production or the cost of raw materials).

• Fake company

Your supplier’s claims that they are in legitimate business are false.

This is a clever scam because sometimes a fake company can appear completely real at first glance with a registered address and a professional website.

Fake company fraud can extend to forwarders, inspection and audit firms, as well as trademarks, copyrights, domain registrations and patent agents.

• Paper tiger

A paper tiger is a supplier who fraudulently claims to be an industry leader in their area of expertise but does not deliver on their promises.

• New bank account

The supplier asks you to make a payment to a personal bank account or to a recipient other than the one specified in the contract.

• Late delivery

The supplier cannot deliver your item on time.

• Implicit fraud

The supplier subcontracts or changes your order without your knowledge and approval.

So what do you do if you’ve been “poked”?

If you’re a victim of Chinese supplier scams, here’s what you can do based on advice from lawyers and industry insiders:

If you are stuck in captivity “with low-quality goods”

1. Write to the supplier informing the problem and requesting a solution
2. If they do not resolve the issue, you may consider litigation or arbitration for breach of contract.
3. If you choose this course of action, the first step is to hire a lawyer in China.
4. Send a letter of demand to the supplier through a lawyer, threatening to sue or arbitrate if the supplier does not resolve the issue by a certain date.
5. If the supplier does not respond to the letter of demand, you can take further legal action.
6. You can also post supplier fraudulent activity on online discussion boards for importers.

Just remember that litigation abroad can be costly..

When a supplier runs out of your money without delivering a product?

Since this is an outright scam and not just a quality dispute, it is advisable to file a formal complaint with the Chinese police in the jurisdiction where the supplier operates. The complaint must be filed at the county (rural) or district (city) level.

However, the police may, at their discretion, either accept your complaint and act on it, or dismiss it. Hiring a local lawyer who is well connected to the police can help move the investigation forward.

In parallel with this, you can try to negotiate with the supplier. An official statement to the police will help put pressure on the seller. The supplier may use delay tactics or ask for time, so it is important to act quickly.

Importers who have been scammed by their suppliers can seek further assistance from the following sources in China:

• Register a complaint and seek assistance from the Chinese Ministry of Commerce by calling its help desk or using the online platform. Both services are available in English only.
• Contact the China Council for the Promotion of International Trade, a government organization that helps resolve commercial disputes.
• Search the website of the National Enterprise Credit Integrity System for basic information about enterprises registered in China. You can find details such as registered address and solvency status. However, the site is in Chinese.

Supplier fraud in China: How to avoid?

The chances that a fraudulent supplier will fully compensate you for your losses are very small. In the event of a quality dispute, even if the item is replaced, you may still incur losses. Therefore, in the first case, it is better not to be deceived. Here are three steps you can follow:

1. Watch out for warning signs

• The supplier refuses to provide a business license or other documents requested by you for verification.
• The supplier is in a hurry to conclude a deal and transfer the initial deposit
• Supplier says it can produce any product
• You have an inconsistent and slow communication with supplier
• The supplier can’t send you a sample
• The supplier changes the payment method (for example, from bank to wallet) or asks you to transfer money to another bank account or recipient.

2. Check, check and check again

To avoid future troubles, importers should carefully conduct due diligence at the stage of choosing the supplier itself..

• Ask them for a business license. If they refuse or stall, they probably have something to hide.
• Double-check this information by contacting the local authority under whose jurisdiction the factory is located and requesting a factory registration report from them.Check the supplier’s website and contact information. Call their office and send an email to their official email address. If you don’t get a response after retries, something might be wrong
• Find the supplier profile in several online directories (Alibaba, Made in China, Global Sources, etc.) and check the consistency of the information provided.
• Also check customer reviews.

• Conduct a physical audit of the plant to ensure that the manufacturer is indeed a manufacturer and not an intermediary, and that it has adequate production capacity. You can either travel to China for this or hire a third party agency such as a China sourcing agent to do this for you.
• Check if the supplier has a quality management certificate that guarantees the quality of the products and services provided. The factory must be audited to receive this certificate.
• Ask for bank details and make sure that the name of the account holder matches the name of the supplier.
• Request a sample before signing a purchase order.
• Ask the supplier for referrals of buyers with contact details of other buyers.

One way to determine if your supplier is a manufacturer or reseller is to check their location. Within China’s clustered production system, each region specializes in a particular product. If the supplier is located far from this region, it is likely that he is a reseller.

3. Build a strong contract

Given the language barrier, importers purchasing goods from China should state all their requirements in writing as clearly as possible. Drafting a solid contract starts with the inclusion of the following details:

• Product specifications and quality standards
• Raw material selection
• Method and date of delivery
• Method and date(s) of payment

With a little effort, you can work with ethical suppliers and like-minded people in China and turn your business relationship with China into a successful and rewarding experience..

Yours, Amaz.Markets