Chinese businesses continue to contact British companies with suspiciously large orders for products from UK based manufacturers. Under Chinese law companies do not have to prove their registered capital in the first three months they exist, and this loophole is being used to create companies to scam foreign businesses.

Companies are often approached by email or fax with poorly specified quotation requests from Chinese firms who have seen products on their website. The value of the work involved tends to be large and the payment terms offered are generally very favourable to the UK company. Terms are usually agreed very quickly and the Chinese side usually invites the supplier to come to China to sign the contract. There may be a request that the supplier takes a large amount of cash (several thousand pounds) with them ‘to smooth procedures’ or as a ‘commission’ payment. After the UK company arrives in China there may be negotiations which involve demands for commission, cash payments or gifts. On the company’s return to the UK, the first payment is not received and no more is heard from the Chinese party. If the UK side has been persuaded to hand over cash, it will be lost.

If approached by a company with an offer that seems too good to be true, it usually is. Maintain your normal business instincts and common sense and rigorously vet the company concerned. Perform a due diligence check on them or ask for their company registration certificate (this will be in Chinese, the China Bureau can interpret this for you) to check their credentials. Do not travel to China or part with any money until you are completely confident of the authenticity of the Chinese company.
Whilst we are drawing attention to this problem it should be stated that few of the many companies doing business with China experience these issues, providing they obey their instincts and take precautions.

If in any doubt companies should contact the China Bureau for advice, which will be offered confidentially.