China Justice Observer

中司观察

EnglishArabicChinese (Simplified)DutchFrenchGermanHindiItalianJapaneseKoreanPortugueseRussianSpanishSwedishHebrewIndonesianVietnameseThaiTurkishMalay

Fraud Alert: if a Chinese Company Signs a Contract Like This-CTD 101 Series

Thu, 20 Jul 2023
Editor: C. J. Observer

You must be alert to fraud when the following situations occur.

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.

1. No Chinese company seal is stamped on the contract.

In China, the official company seal is a symbol of corporate power. Anything stamped with the official company seal is considered to be on behalf of the company’s will.

So, if you’re going to do business with a Chinese company, the contract has to be stamped with the official company seal. In this way, the Chinese courts and law enforcement authorities will recognize that the contract is concluded by the said company.

Moreover, only real Chinese companies have official seals.

In China, making official company seals is under supervision by the police. It would be a crime for anyone to make the company seals without authorization, and in the most serious cases, he/she could be sentenced to 10 years in prison.

If a Chinese company doesn’t stamp a contract or order, it is likely to be a fraud.

2. A Chinese company uses an overseas company to enter into contracts with you or to receive payments.

The overseas company often does not have any ability to perform, or even has no enforceable assets in its name, but rather is a shell company.

The factory performing the contract is located in China, the actual controller of the Chinese company resides in China, and the assets and cash of the Chinese company are also located in China.

In such cases, a contract with an overseas company often means that you cannot recover any damages for fraud or breach of contract.

To some extent, this practice is understandable. Because of China’s foreign exchange controls, Chinese companies are reluctant to bring funds into China for more flexible use.

However, to ensure that this Chinese company bears the necessary liability, we recommend that the Chinese company and its overseas company are jointly liable for you. This way, although the money is paid to the overseas company, the liability is borne by the Chinese company.

* * *

Do you need support in cross-border trade and debt collection?

CJO Global's team can provide you with China-related cross-border trade risk management and debt collection services, including: 
(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

If you need our services, or if you wish to share your story, you can contact our Client Manager Susan Li (susan.li@yuanddu.com).

If you want to know more about CJO Global, please click here.

If you want to know more about CJO Global services, please click here.

If you wish to read more CJO Global posts, please click here.

 

 

Photo by Gabrielle Henderson on Unsplash

Contributors: CJO Staff Contributors Team

Save as PDF

You might also like

China Revises State Secrets Protection Law

China’s national legislature, the National People’s Congress, revised the State Secrets Protection Law to enhance information classification, secrecy in technological innovation, and precise protection of state secrets, effective May 1, 2024.

China Enhances Legal Aid Law Implementation

In November 2023, China’s Supreme People’s Court and other top judicial bodies jointly issued measures to implement the Legal Aid Law, clarifying responsibilities and ensuring parties' rights to legal aid.