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Conduct due diligence on Chinese companies to avoid fraud

by · 6/16/2020, 1:44:47 AM

Avoiding fraud in China can usually be achieved by conducting basic research on Chinese companies before conducting business with them and any financial transactions.

Like any other country, there are fraudsters and fraudsters in China who are willing to cheat you and your company.

In this article, we introduce some common types of fraud in China and some techniques that can be used to protect your business.

Common types of fraud in China

Of course, there are as many types of fraud as fraudsters and fraudsters, but there are some common types of fraud coming from China.

Here we list some of the most common types of fraud in China. But keep in mind that fraud varies widely, and due diligence is always wise.

1.Cheap product scam

With the rise of small traders on websites such as eBay and aliexpress, such scams are becoming more common. Traders receive or encounter attractive offers for goods (usually branded Electronics) from Chinese companies at staggering prices.

Price, of course, is an illusion. In these scams, there are no products, and never will. A fraudulent "company" may not exist at all, it may be a person working alone.

These scams can usually be avoided by simply remembering that if things seem good to be true, they can be avoided.

2.Visa scam

Compared with other forms of fraud, visa fraud may cause less damage to the economy, but may cause legal and reputational problems for the injured company. It works by connecting individuals or "companies" based in China with companies in another country that have expressed interest in doing business with them.

Fraudsters often express interest in visiting the company or their products in person. The fraudsters explained that this would require a visa from the country of the victim's company and that they would need an invitation from the victim's company to obtain a visa.

Fraudsters are of course only interested in getting invitations so that they can enter the target country. This may be for their own purposes, or part of their fraudulent visa acquisition services for the Chinese. The injured company played a role in this process unintentionally.

It may not have a direct financial impact on the injured company, but if it is exposed later, it may have an impact on the legal consequences or damage the reputation of the injured company.

3.China visit scam

The scam is also known as "big order scam" or "Guilin scam". It begins with a "company" or individual who is interested in an order or purchase by an injured company.

Potential orders will be very large or attractive. The only pitfall, the fraudster explained, is that victims need to come to China to sort out documents before they can give orders.

Upon arrival in China, the injured companies were told that they needed to place expensive banquets, provide gifts and pay various administrative fees to make the order run smoothly.

All of this seems to be worth it because the promised order is large enough to absorb the cost. There may be pressure in the form of "this is how we do business in China.".

Of course, after "arranging" everything, the fraudsters disappeared without any orders.

Using due diligence to avoid fraud in China

Some Chinese frauds are so blatant that they can be avoided by simply thinking about the scenario, rather than on the surface.

If considering that your dealings with a Chinese company still seem reasonable, the next step is to try to determine if the company does exist.

If it appears that there is no company registered in China, then you can assume that you are cheating.

Avoid fraud using false details

However, a more covert form of fraud is where the fraudster uses the details of a legitimate company and provides it to the victim when more identification or verification is required. Identifying such fraud is tricky because the details given by the search do indicate that there is a real company behind it.

In these cases, one possible option is to independently collect information about the designated company and then use the information collected during the study to make new contacts with the company.

The so-called new contact refers to the abandonment of existing contact with related companies (such as previous e-mail communication or telephone contact), and the attempt to establish contact only with verifiable information obtained from independent research companies.

In this way, if you deal with a legitimate company, you will re-establish contact with them, and the correspondence can be done again.

If a new contact is established and the company does not know any previous contact, you can assume that your previous communication with the company is actually with an untrusted third party.

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