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Avoiding Fraud and Scams: What to Do When Your Chinese Supplier Is in An Abnormal Operation State?-CTD 101 Series

Thu, 05 Jan 2023
Contributors: Meng Yu 余萌
Editor: C. J. Observer

This is a red flag. It means that you should verify the Chinese enterprise before signing the contract.

This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection. We will explain how debt collection works in China below.

Recently, a client reached us for help in contacting a Chinese enterprise.

He purchased a shipment of goods from this Chinese enterprise. After that, he wished to return the goods. Although the return of goods was agreed upon, communication between them was extremely slow. The Chinese enterprise always responded to an email after a long time.

He has been trying to get in contact with the senior management of this Chinese enterprise to speed up the communication and asked for our help.

We provided him with free Chinese enterprise verification service.

Upon verification, we found that this Chinese enterprise had been marked as in an “abnormal operation state” by China’s enterprise registration authority before signing this contract.

A Chinese enterprise will be marked as in an abnormal operation state usually for the following reasons:

i. failure to complete the enterprise annual review;

ii. To be unable to be reached by the enterprise’s registration authority; or

iii. concealment of factual information at the time of registration by the enterprise.

If even the registration authority could not reach the enterprise, it is less likely for the creditors to get in contact with it.

As we can see from it, the enterprise is not honest and might defraud its client during the transaction. In other words, it is not a suitable trading partner.

Verify a Chinese enterprise before you sign a contract. It will allow you to spot most of the obvious fraud risks.



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(1) Trade Dispute Resolution
(2) Debt Collection
(3) Judgments and Awards Collection
(4) Bankruptcy & Restructuring
(5) Company Verification and Due Diligence
(6) Trade Contract Drafting and Review

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Photo by Marko Sun on Unsplash

Contributors: Meng Yu 余萌

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