China’s manufacturing activity grew at the slowest pace in more than a year in August, with export orders shrinking for a fifth month and employers cutting more staff.
Sadly, the gloomy findings reinforce views that China’s economy will cool further in coming months, as the United States ramps up tariffs on Chinese goods. This declining Baltic Capesize Index(BCI) shows that economic stress on SME manufacturers in China continues to increase.
An increase in closures and bankruptcies of Chinese factories leads to an increase in scams and frauds?
These shutdown and bankruptcies do not reflect the condition of the Chinese economy in overall, however, the weak and technologically backward companies are expected to be swept away and they should have been eliminated many years ago in a fully market economy, this negative impact primarily hit SME manufacturing sector the most. According to non-government economists, the decline could lead to a wave of plant closures and bankruptcies throughout China’s SME manufacturing sector.
Steve Dickinson, an expert in China’s business sector left us a reminder on his article: for foreign buyers, they might be worried about that an increase in closures and bankruptcies of Chinese factories leads to an increase in scams and frauds. Think about that, when a factory in China knows it will be shutting down, its owners often trying to make the final score. They set up a deal that allows them to bring in as much cash as possible in the short term.
Why Chinese factories tend to target foreigners, rather than Chinese nationals?
There are considerable legal risks in scamming Chinese, conversely, cheating on foreigners is much easier, their countries embassies have limited power in these scenarios, and Chinese police tend to overlook scams against foreign buyers as long as the scams don’t lead to serious crimes. A factory owner planning a scam will likely target individuals with the least risk of repercussions. In this scenario, foreigners are that category.
Offering you a heavily discounted rate but asking an increased deposit
Be careful of a factory offering you a heavily discounted rate on their products. It’s not a good sign to make a deal, generally, you are required to pay an increased deposit. A common deposit amount among Chinese factories around is 30 percent of the total order price, if a factory asks you a deposit up to 50 percent, it might be a scam. In this case, the factory would shut down and walk away as soon as they have collected your deposit.
Shipping non-conforming products after full payment
The factory offers you a discount in exchange for full payment before shipment. After you make the payment, the factory ships defective products or even scrap material instead of qualified products.
In this case, you need to hire a professional third-party inspection to verify the goods before payment and ensure they meet your standards is one way to protect yourself from this.
Factory owner sells you their entire business
You may be the victim to this scenario if you’re one of the factory’s largest foreign customers. If the factory owner offers to sell you their business, and they tell you that the deal close very quickly and in exchange offers an unrealistically low price, there might be a setup. Once the deal closes, typically via wire transfer, the owner disappears.
You typically will meet a very unpleasant situation when you visit the facility to assess conditions, including the following possibilities:
The factory wasn’t actually owned in the first place, instead, they rented it.
The previous owner stripped the building of all materials and machinery
The landlord and workers demand back payment on rent and salaries that the ex-owner owed them.
All in all, if you get a deal that is obvious too good to be true, then trust your intuition, it might be a trap! Honest deals exist, but remain cautious when navigating an overtly tempting offer.