Protect Your Business from China Importer Scams and Frauds

Exporting to China can be a lucrative business opportunity for small businesses, but it also comes with risks and challenges.

Here are some common scams and frauds that small businesses may encounter when exporting to China:

Fake Payment Scams

In this scam, the Chinese importer sends a fake payment confirmation to the exporter, convincing them to ship the goods before receiving payment.

 

To avoid this, always confirm payment before shipping any goods and use secure payment methods like escrow services.

Quality Disputes

Chinese importers may dispute the quality of goods received to demand a lower price or reject the entire shipment.

 

To avoid this, ensure that you have clear quality standards and conduct quality checks before shipping. It’s also recommended to include detailed quality inspection requirements in the contract.

Customs Scams

Some Chinese importers may undervalue or misclassify goods on customs declarations to avoid taxes or tariffs, leaving the exporter liable for penalties.

 

To avoid this, ensure that the importer follows all customs regulations and verify the accuracy of the customs declarations.

Intellectual Property Infringement

Some Chinese importers may also counterfeit or copy your products or brand, infringing on your intellectual property rights.

 

To avoid this, register your trademarks and patents in China and conduct regular monitoring for infringement.

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  • Advanced precaution: To mitigate the risks of scams and fraudulent activities when exporting to China, it is advisable to conduct due diligence on the prospective importer before engaging in any business transactions.

  • Remedial action: In the unfortunate event of falling prey to a fraudulent scheme orchestrated by a Chinese importer, it is imperative to seek prompt legal assistance to safeguard your interests and enforce your legal rights.

Trustiics connects SMEs in need of legal services in China with vetted top-tier lawyers. Users can choose fixed-price services, receive a free quote from their selected lawyers, or start with a quick legal consultation.

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Legal Q&A

What are some common scams or fraudulent activities that exporters may encounter when selling to the Chinese market?

Some common types of scams or fraudulent activities that exporters may encounter when selling to the Chinese market include:

  • non-payment or delayed payment
  • fake or fraudulent payment instruments
  • fraudulent shipping arrangements
  • phishing or other forms of online fraud

How can exporters verify the legitimacy of a Chinese importer before shipping their products?

Exporters can verify the legitimacy of a Chinese importer by engaging a local lawyer to conduct due diligence at the beginning of cooperation as well as on a regular basis.  Due diligence should at least include the Chinese importer’s following information:

  • registered company name and registration number
  • date of registration and domicile
  • registered capital and paid-in capital
  • scope of business
  • authorized signatories
  • shareholders information,
  • bankruptcy record (if any)
  • major pending litigations (if any)

Trustiics offers a quick 72-hour legal due diligence service.  It has been welcomed by North American small businesses and online merchants that sell to the Chinese market.

What legal recourse is available a small business falls victim to a scam or fraudulent activity by a Chinese importer?

If a small business falls victim to a scam or fraudulent activity by a Chinese importer, they may have legal recourse under Chinese or international law, depending on the circumstances. Possible legal remedies may include:

  • breach of contract claims
  • fraud or misrepresentation claims
  • filing of civil lawsuits
  • reporting of potential crimes

How does a letter of credit work in international trade with China? Are there fraudulent activities involving the letter of credit?

A letter of credit is a payment instrument that offers a level of protection for both the importer and the exporter. The importer’s bank issues a letter of credit to the exporter’s bank, promising to pay a certain amount upon the fulfillment of specific conditions. The exporter can use the letter of credit as a guarantee of payment and ship the goods with confidence.

 

While a letter of credit can provide a degree of security for both the exporter and importer, there are also potential risks and fraudulent activities associated with it.

 

For example, a fraudulent importer may provide a fake or invalid letter of credit to the exporter, or the exporter may ship goods that do not conform to the terms and conditions of the letter of credit, which can result in non-payment or disputes.

 

To minimize these risks, it is important for exporters to carefully review and understand the terms and conditions of the letter of credit, and to work with reputable banks and financial institutions that have experience in international trade.

Is requiring full payment or advance/down payment something worth considering?

Requiring a full payment or a large advance/down payment from Chinese importers can be a risk mitigation strategy for North American exporters. However, it is important to balance the need for payment security with the need to maintain a competitive position in the market.

 

Requesting a partial advance payment, for example 30%, with the remaining balance due upon shipment or delivery, is a common practice. The specific payment terms should be negotiated and agreed upon in the sales contract or purchase order.

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