Be aware of scams when you want to do business with people or companies of Chinese origin.

I am a western lawyer living in China for almost 10 years and even if I need more than my whole life to fully understand China there are some things that are quite certain and I would like to share. 

Being a foreign lawyer in China is quite normal to receive quite constantly several inquiries from western people and companies that have been cheated from a Chinese counterpart. To be clear, not all Chinese business people use scams or think how to cheat their foreign counterparts. I am referring in this post for the part of Chinese that do choose to scam or use for their favor the under-developed Chinese legal system. What I always say to western people is that you must know with whom you are dealing and sign a contract that can be actually useful and enforceable. And if you are not careful is a matter of time that you are gonna lose money. 

There are many reasons that a western person or business get cheated. The most common is the very good trade price of a product. Usually via Alibaba international buyers find an attractive price and they contact the supposed Chinese supplier. But the supplier is not the real producer and in many cases scammers can even send you a perfect sample and trick you into believing that you found a good and reliable business partner.

While I will create another post describing which diligence steps you must follow when you want to close a deal with a Chinese supplier you must know that your main scope is to be sure with whom you are dealing and try to avoid a dispute and resolve to the Chinese legal system (that could be a joke).

I will just say some very basic things for your protection:

Be aware that Hong Kong and mainland China even if Hong Kong is China and belongs rightfully to China have different legal systems. It is IMPERATIVE to know the Chinese legal name of the potential partner because only the Chinese name is the legal name of the Chinese company. If you don’t know the Chinese name of the potential partner then you don’t actually  know who is your partner. ALWAYS but ALWAYS payments must be made into the designated company bank account that must be written in the contract. Always, a contract with a Chinese part must be stamped by its STATE REGISTERED  official company stamp. That stamp is a round shaped red stamp and EVERY Chinese company has. If a contract is not stamped with the red stamp in case of a dispute, contract could be null.

While there are many things to share for your protection I just want to finish this part with some example of dispute issues. If you are thinking that you are speaking with a Chinese mainland company but actually you are signing a contract with a HK company then you are in trouble. Or you may think that is ok to sign with a HK company but go to China court or arbitration. Many westerners lost their money for this reason especially when the money claimed back are let’s say no more than 40-50.000 USD. The way that Chinese scam western people is by signing a contract with their HK company but then if a problem arises is agreed in the contract that the issue will be resolved  through China mainland arbitration court. This means that the Western company must file for arbitration in mainland China and pay a load of money because arbitration clause is in default status(default status means language of the arbitration will be Chinese language).

Nowadays, arbitration in China is safe and fair and is generally advisable IF the assets to claim in case of a dispute are in mainland China.  In our imaginary case(actually true) the western buyer has paid 40000 USD for a product that he never received. Arbitration court will easily give him right.

BUT

Here comes the Chinese scam way.

First of all, he must hire a Chinese lawyer for the arbitration court. He should expect minimum  a 10% lawyer fee of the amount claimed. THEN, quite 100% the Chinese part will not abide to the arbitration award. Thus, he must enforce the arbitration award. He can enforce both in HK or mainland China. Since the counterpart is  a HK company makes sense that he must enforce in HK! This means he needs a HK lawyer to enforce the arbitration sentence and a HK lawyer is even more expensive!

BUT bear in mind,

any lawyer either in Mainland China or in HK cannot find him or will not help him find any assets of the Chinese counterpart like bank accounts, real estate properties, cars etc. so he can confiscate them and put them in auction to satisfy his claims. In addition for similar cases is rare that the judge will freeze any assets before the main court. 

But even before considering asking a judge to freeze eventual assets or enforce the arbitration award,

he must be sure that he knows IF the Chinese counterpart has any assets and WHERE are these assets. This means he must hire an investigator team that will search and find for him any bank accounts or other assets. And he needs to pay a good amount of money BEFORE he even goes to court. So he must pay upfront a lot of money without any guarantee that in the event of winning the court will get his money back.

Unfortunately, there is a pattern where Chinese scam people use the under developed Chinese legal system with this way and in many other ways to cheat western people. I have seen so many cases from amounts ranging from 20 to 50000 USD that really is not worth it to do anything. All this frustrates the western part and because it doesn't make any financial sense in the vast majority of the cases like this he accepts he lost his money. Special thanks are given also to Chinese police that in relation to frauds and electronic crimes is pretty useless especially if there is a foreign victim. 

I will write another post about how Chinese police is dealing a case of fraud with victim a foreign element unless you have your relative working there.

Thanks for reading.