New Scam in China – Big Order Scam

It has been a long time since China opened its vast market to foreign investors. It created many opportunities but also some dangers. A lot of people, blinded by the perspective of big profits, forgot about basic safety measures. As a result, they were cheated by Chinese scammers. Along with the technical progress and overall rise of investors’ level of knowledge, the scams are getting more and more elaborate.

China Big Order Scam – how do the Chinese scammers operate?

A couple of years ago, the “Guilin Business Scam” was quite popular. It usually begins with the Chinese company showing big interest in our products. The usual negotiations follow, the Chinese ask for samples, want a better price, etc., but in the end, they inform us that they will make a huge purchase. The condition is that in order to sign a contract, our company representatives must go to China. When it happens, the Chinese company books hotels and organizes dinners in expensive restaurants. There are always some “notarization fees” that we should cover. We are asked to pay all the bills and pay some bribes for local officials (and we do it, hoping to get a big deal worth hundreds of thousands of dollars), but in the end, no contract is made, or the contract is unlawful or invalid. The scammers made money because they made agreements with restaurants and hotels and the price of these services was higher.

From the scammers’ perspective, the most important aim is to build trust in the potential victim. In the case of the “Guilin Scam”, the fraudulent individuals pretended to be a legitimate company by faking the negotiation process. While foreign investors are getting increasingly suspicious and have more tools to verify the Chinese company, the scammers must change their way of operations.

A new type of scam

The new way of scamming also involves creating the perspective of big profits. The foreign company meets the Chinese company during a trade fair show or in Europe/US. Samples ordered from China are of good quality, the negotiations follow, and the first order – usually small – is placed. Chinese companies are rather familiar with the requirements of international trade – when the first order arrives, the quality is sufficient.

What is more, the second order is also of good quality. We are definitely persuaded: this company is reliable. What will possibly happen later? Well, most likely, we will get a discount or a new offer. Because the cooperation was fine, we will be lured into a big contract – but we will never see the shipment. The company will disappear; they will not answer our phone calls, e-mails…

How to protect yourself against China scams?

Probably we dealt with a trading company that did not have a factory. It was not a big problem as long as we have been receiving our orders at a competitive price, but it is relatively easy to shut down the trading company entirely and leave no traces behind. Most likely, we neglected an important step: verifying the Chinese company. We should either go through its registration documents or use an independent due-diligence service to perform the verification for us. It surely does not guarantee 100% safety – but if something goes wrong, we will know the company’s registration data, including the name of its legal representative, and it will be enough to sue them. Do not dismiss this option: the Chinese judicial system has undergone a long way of reform and improvement, and in many cases, you can achieve the desired goal (rather not the 100% of the lost amount of money).

Chinese scammers are relying on modern technologies and are smarter than before. Maybe we have cooperated with this company for several years, but who can guarantee that they will be reliable when our deals get bigger? Even a Gold Supplier badge on Alibaba doesn’t prove anything, especially when it is possible to sell an Alibaba account to the other company. But basic safety measures remain the same – always verify your supplier. And do not expect people to behave honestly just because they were reliable in the past.