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Don't forget your common sense when doing business in China
13.4.2016

Everybody views China as a potential export market, and everybody is aware of the risks of doing business in China, but for some strange reason many business people seem to lose all common sense when dealing with Chinese companies.

The following story happened to one of our customers. You will immediately ask yourself how it was possible that a European company even took the time and effort to keep communicating with this Chinese company for several weeks. Unfortunately it is not a unique case: many European SMEs get cheated, but also big companies are often the victims of such scams.

A Belgian manufacturer of special coatings was approached by a Chinese person by e-mail, stating that they were interested in the products from the Belgian company. The Belgian company informed the potential Chinese customer that they don’t have the products the Chinese company was looking for. After only a few e-mail exchanges and some minor additional questions, the Chinese customer suddenly decided to change the order. Furthermore, although the newly ordered products were very different from the initial order request, the order value was still about half a million EUR.

The Chinese contact person never disclosed his full Chinese name. He only used a common English first name, without even mentioning a family name. Furthermore, the e-mail address used was an ‘anonymous’ Hotmail account, unable to be linked to any company. In the beginning the draft purchase contract didn’t mention any information about the buyer. Only after numerous appeals, did the Chinese customer finally disclose a company name and website, but that website had no relation to the industry for which the products were needed. The Chinese contact person came up with all kinds of stories and excuses, but never really satisfactorily answered the supplier’s questions.

And then, suddenly the Chinese customer fabricated a story about a problem with foreign currency and insisted that the Belgian supplier travel to China as soon as possible to meet face to face, sign the contract and in this way solve this so-called problem.

At this stage the Belgian company contacted us. We strongly expressed our major concerns and warned the Belgian company that there is really no reason at all to travel to China for that purpose. Most likely the Chinese ‘so-called’ customer is only trying to persuade the Belgian company to pay some money (the notorious ‘red envelop’) and give gifts to some local officials to get the deal done. They just need a ‘white face’ to impress their local connections and build their own reputation, and afterwards nothing happens and the Chinese customer just vanishes.

Luckily this story ended well, but unfortunately many similar incidents happened before and still today many companies are the victims of such scams. There are many other possible scams or problems that could occur when doing business with China, such as fake companies, parasite companies, bank account fraud, etc.

To conclude: whenever doing business in China, you need to be prepared for the worst. Never take anything for granted and inform yourself properly before taking any risks. It is far too easy to always blame the Chinese side for copying our products or for infringement of intellectual properties.

As a final note I have to say that the big majority of Chinese companies are honest and willing to develop long-term business relationships with its foreign counterparts, but European companies should be more aware of the dangers and risks.

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