China inspections

3. Failure to confirm a contract in a legally binding manner
Let’s say a manager signs your contract. It is not enough for two reasons:

That manager might not be the legal representative of the company it represents.
A signature is not always enough. It is important to require a chop (stamp).
Why is it risky?

It reduces your chances in case the relationship deteriorates and you try to sue them in China (remember, suing outside China is nearly always useless) to collect money.

What should you do?

Work with a lawyer specializing in China business, to draft your contract template and to clarify what you should look out for. Signing a contract without checking the Chinese version’s meaning is another common trick to avoid (read this recent article on the China Law Blog).

2. The salesperson uses a personal email address
It seems to be the case for about half the Chinese suppliers. Their representative use addresses such as xxx@163.com, yyy@yahoo.com.cn…

Why? Out of convenience. Free email accounts are easy to set up. And the factory boss often doesn’t use emails himself.

Why is it risky?

Let’s say you don’t receive products from a supplier, even though you have wired money to them.

You go and meet with their owner, who says he never heard about your order. You show the email where his salesperson sent you a pro forma invoice. The owner replies “this person has left our company last year”.

Naturally, the salesperson was using a personal email address — the same she had been using for years to communicate with you. And the invoice was in another company’s name.

The owner’s excuse might be right or wrong. But it is a good excuse, and you have likely lost your money.

What should you do to avoid it?

First, be careful what company you pay — see point 1.

Second, research the company’s phone number on the supplier’s website. They will often show a number (and maybe even a general email address) to reach the export sales department. Use it from time to time.

Here are three examples that are very, very common. Surprisingly, most purchasers “go with the flow” and assume it is normal business practice in China.

1. Invoices in the name of another company
Have you already seen one company name on marketing materials (trade show booths, name cards, email signatures…) and another one on invoices / bank accounts?

Why would they collect payments through another company?

Maybe it is a sister company that has a better ability to export products, collect VAT rebates, and change foreign currencies.
Maybe it is the Hong Kong branch/holding of the Chinese manufacturer.
Maybe it is the manufacturer’s company, while all negotiations were conducted by the agent (who has an agreement to get X% from the manufacturer). Maybe it is the reverse.
Or maybe it is a totally unethical and illegal arrangement whereby certain orders are diverted to another company by unscrupulous employees!

Why is it risky?

Imagine your orders were made in a nice factory, and suddenly they get made somewhere else (in a cheap workshop, under the supervision of a rogue salesperson). Scary.

What should you do to avoid it?

Ask for an explanation when you see different company names, and then check if what you are told is true. An excellent tool is glo–bis. It is amazing what one can learn about any Chinese company, for less than 300 USD…