In international trade, some unscrupulous Chinese suppliers may resort to fraudulent means. Foreign buyers need to be vigilant. Tianni Law Firm has handled hundreds of cases involving fraud by Chinese suppliers; this summary provides some legal advice.
A. Common Types of Fraud
1. Goods-Related Fraud
- Substandard goods: suppliers intentionally provide goods of lower quality than stipulated — inferior chips, cheaper fabrics, or refurbished machinery passed off as new.
- Quantity shortage: the quantity shipped is less than the contract, concealed by falsified shipping manifests or intercepted goods.
- False packaging: packaging that misrepresents the product, or excessive packaging that conceals quality problems and reduces actual weight.
2. Document Fraud
- Forged documents: bills of lading, invoices and quality inspection certificates that mislead buyers into believing goods have shipped or meet standards.
- Altered documents: genuine documents changed to inflate unit prices or misstate shipping dates.
3. Contract Fraud
- Ambiguous clauses: contracts deliberately vague on quality standards, acceptance methods and delivery time to evade responsibility later.
- Dual contracts: a public contract with favorable terms shown to the buyer, and an internal contract with terms more favorable to the supplier.
4. Credit Fraud
- False qualifications: forged registered capital, production capacity and success stories to appear strong and reputable.
- Impersonation: impersonating well-known companies to secure orders, making the true responsible party hard to identify.
5. Transportation Fraud
- Collusion with freight forwarders: conspiring to divert or detain goods, then demanding ransoms.
- False shipping information: forged bill-of-lading numbers and schedules that prevent accurate tracking.
6. Payment Fraud
- Unusual payment conditions: demanding large upfront payments to a private account instead of a company account.
- Forged payment notifications: misleading buyers into believing payment has been made, lowering their guard.
7. Intellectual Property Fraud
- Unauthorized use of IP: using the buyer's trademarks, patents or designs without authorization to produce and resell goods.
- False IP declarations: claiming to own IP rights to coerce extra fees or unreasonable terms.
B. Prevention Recommendations
1. Preliminary Investigation
- Verify supplier information through the Ministry of Commerce, Tianyancha and Qichacha — company registration, business status and credit records.
- Inspect factory strength — personally visit or commission a third-party factory audit.
- Review qualification documents — business licenses, tax registration, import-export licenses and certifications.
2. Contract Signing
- Clearly define terms — specifications, quantity, quality, price, delivery, payment and breach liability, avoiding vague language; have key terms reviewed by a lawyer.
- Include guarantee clauses — bank guarantees or security deposits to reduce risk.
3. Transaction Process Monitoring
- Track goods transportation — maintain close contact with freight forwarders and request cargo tracking information.
- Phased acceptance — for large-volume goods, inspect at each production stage.
4. Dispute Resolution
- Preserve evidence — contracts, invoices, bills of lading, inspection reports, emails and chat logs.
- Seek legal recourse — first attempt amicable negotiation, then pursue arbitration or litigation per the contract.
Suspect you've been defrauded by a supplier?
Act fast — evidence is easily lost. Our team has handled hundreds of supplier fraud cases.
Get a Free Consultation