Unfortunately, it is common to be exposed to fraud when importing from China. It could be payment fraud in the form of fake companies or that the suppliers cheat with the quality.
In this article, we will go through how to best minimize the chance of falling victim to fraud. For more risks and tips of buying from China, please check Zhengsourcing.
How do the scams work?
When it comes to payment fraud, it is usually done by organized criminal groups that specialize in just these scams. A trend since a couple of years ago is that they hack or otherwise hijack suppliers’ e-mail communications and make their victims pay into their bank account instead of the supplier’s. Most often, they can have an insider with the supplier in the form of e.g. factory employee.
Frauds can also be about copies and products where the manufacturers have cheated with the quality and used inferior materials than agreed.
Note that poor quality does not have to mean that the supplier had bad intentions, it can be the result of poor communication. Therefore, it is extra important to be as specific as possible with details for your production so that it should not be possible to misinterpret.
Which products are most prone to fraud:
- Foreign branded products: Products that are protected by a trademark require a license, so if a factory offers you branded products, it is best to stay away.
- Technology products: It is common for technology products to be labeled with higher capacity than they actually have or for the quality of the product’s components to be cheated. For storage devices such as hard drives and USB sticks, it is not uncommon for them to appear to have the “right” capacity, but with careful testing, a large part of the capacity can prove to be unusable.
- Popular products: The products that are most popular will be offered by fraudsters, usually at significantly better prices than at other suppliers.
How to identify a fraudster?
There are some warning signs from suppliers that you should be vigilant about:
- Offers branded products.
- Offers a wide range of products without a clear connection to each other.
- Offers products that are not manufactured in the seller’s area. In China, it is common for products to be tied to specific areas.
- They want you to pay in other ways than to a bank account in China that is linked to the company. Usually to account in Hong Kong, or personal account in China.
- They do not want you or your representative to pay a factory visit, which indicates that they have something to hide. Sometimes even the opposite that they want you to visit, but know that the probability is very small.
How can you protect yourself?
- Make sure the suppliers are what they claim to be. If you do not have the opportunity to do it yourself, let e.g. an import agent do it for you. It is especially important to verify the supplier’s bank account and company license. Also ask for copies of the supplier’s registration certificate. On the certificate you can see who are the company’s legal representatives, who are the only ones who have the right to sign agreements. Also, make sure that they sign with their Chinese (ie real) names.
- Pay only to bank accounts in China (Not Hong Kong), which are linked to your provider. Often when a Chinese company is registered in Hong Kong, it is because they do not have sufficient resources and in some cases it is because they are fraudsters.
- Make sure that the people you are communicating with are in fact the ones they pretend to be and that they have the authority to negotiate with you. Be very skeptical if your provider suddenly changes your email address or bank account.
- Never rely entirely on Chinese trade networks without first doing proper research. For example, use Chinese search engines such as Baidu and look up the company in government records. It is very easy to post fake information such as pictures and products to entice buyers.
- Perform quality checks and factory visits. Doing quality control is the best way to insure yourself against cheating. Even if you do not have the budget for it, you should still always flag that you will make factory visits and quality checks.
- Try to look bigger than you are. If you are a large company with resources, you scare away most fraudsters and other rogue actors. Partly because if they think you will make factory visits and quality checks, they will not try to cheat and partly because you have a greater chance of taking legal action if you have the resources. Show that you have contacts in China. Show that you also have the muscle for continued orders.
- Be specific with product description and other conditions. You can e.g. do not take for granted that the supplier meets the certification requirements that exist in the EU. You should also list all details that are relevant to your production such as color, dimensions, materials, etc. If you miss being specific, there is a good chance that the supplier chooses to use inferior, cheaper materials where you have not specified specifically what to use.
- Never pay 100% in advance (usually no more than 30%, depending on the size of your import). If you e.g. have already paid the full amount, you have a very bad seat if you should discover quality problems. The supplier has already been paid and does not get anything out of correcting the mistakes.