Recently, up to a million Chinese companies have disappeared, leaving their customers out in the cold. Not all of them survived the difficult economic times. Due to the increased bankruptcies of Chinese factories, we remind you to verify even the suppliers you have built long-term business relationships with.
Why is it worth verifying Chinese companies?
We verify Chinese companies on a daily basis and encounter various types of fraud. One of the most prevalent cases is a big order scam, and the second one is a China bank switch scam. Other seller fraud schemes include providing false certificates (like in the case of medical devices) or backing out of the deal after receiving the first installment. There are also situations when the supplier simply does not exist. It is also very problematic when the manufacturer receives payment for the order, but instead of carrying it out, the company copies the design and introduces the product to the market on its own, sometimes for half-price.
However, we always emphasize not only verifying new suppliers; existing business partners should also be verified. In China, there are many types of scams. It is also important to remember that this is a large market, and hundreds of thousands of Chinese companies and factories go bankrupt every year.
Bankruptcies of Chinese factories
According to official statistics, up to 460,000 Chinese companies close each quarter in China. This number may be higher, as many companies are on the verge of bankruptcy and have yet to file for one. In the first quarter of 2023, the manufacturing industry’s profit decreased by 27%. China’s core industries were hit hardest, but electric vehicles and solar panel manufacturers coped the best.
Unfortunately, an impending bankruptcy can lead to fraud. Business owners in China, expecting to close, may use a last-ditch opportunity to make deals and make money for products they will never actually ship.
What can you do to protect your business?
Many importers believe that everything will be fine if they have been cooperating with one business partner for a long time and nothing has happened. That is not always the case, as some of them encounter problems with suppliers. For example, there may have been a change in the company’s leadership and values. Therefore, we recommend that you check the company’s current situation by verifying it.
If, after reading the report on the chosen Chinese supplier, you decide to source from the company, be sure to sign a commercial contract valid under Chinese law.
Another key safety measure is quality control in China. At various stages of production, it is necessary to check whether the product is produced in accordance with the order. The quantity and quality of the products should also be verified before shipping.
Carrying out due diligence, signing a valid commercial contract, and conducting quality control will protect you from serious financial damage. It is better to spend some money upfront than to fix something that could have been avoided.