welcome to the eu sme centre european sme ......group. she has first hand experience with business...
TRANSCRIPT
A project funded by the European Union
WELCOME TO THE EU SME CENTRE EUROPEAN SME WEEK WEBINAR SERIES
November 25 – 29 2013
25. November Selling Online in China 26. November Avoiding Common Scams when Doing Business in China 27. November Marketing your Products in China 28. November Finding an Agent/Distributor in China 29. November Applying for the CCC Mark in China
All webinars will take place from 10 – 10:45am Central European Time and 5 – 5:45pm China Standard Time.
www.eusmecentre.org.cn [email protected]
Please continue to submit your text questions and comments using the Questions Panel
A project funded by the European Union
Avoiding Common Scams when Doing Business in China
November 26, 2013
Ludmila Hyklova, Legal Expert in EU SME
Centre, Has spent several years in
China as Head of legal and compliance for a large EU privately owned financial group.
She has first hand experience with business start ups, foreign investment and has provided legal advice on various China related business strategies.
Our Speaker
Overview
1. Problematic partners and most common scams 2. Preventive measures 3. What to do when you are subject of a scam
Common Scams 1.
Problematic Partners
A potential partner may not exist at all
A potential partner may promote itself as a leading company in its industry but is in fact an imposter
Fake companies Paper tigers
Parasite companies
A potential partner may rely too heavily on its relationship with local government officials. This may mean the company is operating in a legal grey area and vulnerable to changes in government personnel
Shell companies
A potential partner may possess all the required registration information but no significant assets of active business records
”Imposter”
Foreign company (FC) gets unsolicited email from Chinese
company (CC) offering to supply goods for a very low
price
FC asks for samples. Samples
are of good quality.
FC pays money to CC. Goods delivered
are poor quality or worthless materials
CC vanishes
”Fixer”
FC gets unsolicited offer from CC to supply goods to FC for a very low price
FC is invited to come to China (e.g. to attend “signing ceremony”)
CC tells FC that it must pay money (e.g. a banquet with “officials” to speed process along; processing
fees; taxes, etc.)
FC pays to move process along CC vanishes
”Bank Account”
Relationship is formed between FC and
“representative” of legitimate CC (e.g. on
internet or at trade show)
FC decides to buy from CC. Often a
large order is placed as good relations had been created earlier.
“Representative” tells FC to send payment to non CC account (maybe citing tax
reasons).
No goods received.
“Representative” vanishes.
CC honestly declares no
communications or contract with
FC.
Preventive Measures 2.
Types of Key Business Partners
EU SMEs
Agent
Service providers /
intermediaries
Landlord
Employee
Others
Manufacturer
Distributor / potential
buyer
Joint venture partner
Collect Information
Business Licence ID card Special Permits Land Use Rights Right to use premises IPR ownership
certificates Company Chop
Creditworthiness Letter
Financial Statement Capital Verification
Report Bank account details
30/11/10
Legal Status
Financial Status
Ask for the Business Licence
30/11/10
Business Licence for Corporation Legal Person Registered No.: 4xxxxxxxxxxxxx2 Name Yong He Consulting Service Co., Ltd. Address Unit 2-8, 10/F xx Building, Fuhua Road, Haidian District, Guangzhou, Guangdong Legal Representative Lao Wang Registered Capital RMB 2,000,000 Paid-up Capital RMB 2,000,000 Type of Registration Limited liability company Scope of Business Commercial consultancy and corporate management consultancy; Information and business process, sub-contracting services such as system application management and maintenance, information technology support and management, financial settlement, software development Shareholder He Yong Limited Term of Business: January 18, 2007 to January 18, 2057 Date of Establishment: January 18, 2007 Passed 2012 Annual Inspection Registrar: Guangdong Administration for Industry & Commerce (Seal)
Ask for the Business Licence
Visit your partner and ask for the original Ask for scan copy with affixed company stamp Can be checked on Administration of Industry
and Commerce (AIC) websites www.saic.gov.cn http://www.saic.gov.cn/ywbl/zxcx/djqyxxcx/index.html
and at local AIC branch*
Verify the Business Licence
Website of Hebei AIC
30/11/10
Double Check with NACAO Website
NACAO website (National Administration for Code Allocation for Organizations) http://www.nacao.org.cn/
Is there a Company Stamp?
Company stamp Equals the signature of person authorised to sign on behalf of
the company Chinese name must be SAME as on business licence (and other
documents);
Old version company stamps: Only common seal, stamps for financial use and contract use are
required to be filed with public security authority No stamp code number on the face of the stamps Made of various materials
Is there a Company Stamp?
Newly applied anti-fake company stamps: Filed with competent public security bureau, with built-in chip in
some places like Beijing, Hebei. Only common seal and stamp for special contract use can be
bilingual. With a five-pointed star in the middle (excluding stamp for invoice
use) With a 13-number stamp code under the star granted by public
security bureau In red ink; Shape:
Circular with a diameter of no more than 4.5cm; Oval 4.0 (length) x 3.0 (width)
Scam examples
1. Fake companies 2. Imposters
Verify the Other Mandatory Documents
30/11/10
Landlord of your office Ownership certificate – is the office allowed to be rented for commercial
purpose?
Distributor Distribution permit – for certain products a special distribution permit is
needed e.g. food
Service provider Permit for the specific service, e.g. accounting
Get Information of Their Financial Status
30/11/10
Creditworthiness Letter Both for the company and its shareholder(s) Issued by bank upon request of the partner Bank Account Always ask for company account and verify where the bank
account is located Capital verification report, financial statements and audit reports Under certain circumstances financial statements may be obtained
at the Administration of Industry and Commerce (local branch)* Credit history Applied by partner itself at Credit Reference Centre of PBOC
Company Operations
Pay a visit to the company's premises – go a few times, sometimes unannounced Organisation Cleanliness Employee conditions Location
Visit other premises like distribution network Talk with employees and pay attention to whether they understand
their business Talk to suppliers, neighbours, competitors Check if it is a member of any official association and contact the
association for reference
Quick Tips
30/11/10
DO NOT Too smooth? Fast? Considerably cheaper than market average? –
Do not engage!
DO NOTICE Bank account – is it a company account? Is the name the same as
in the contract? Is the account number the same in all invoices? Websites? Fixed phone line? Try calling a few times. Suggest skype contact with web camera. Email address is a company one or is it @163.com, @yahoo.com? Communication style, contact person is it changing?
What to do When You are Subject of a Scam
3.
Review What You Have in Hand?
“Paper” - contract, purchase order, payment order, copy of business
licence, other certificates?
Are they originals or copies with official stamp?
Does the company exist? Where is it registered? Who is legal
representative?
Visit Administration of Industry local websites
Contact the company\legal representative, but avoid your “contact person”
Was the company itself subject of a scam?
Find trusted and independent local advisor
Negotiate
When Negotiation Fails
Calculate your losses and compare it to further expenses for
dispute settlement (administration fee, law firm, translation and
travel costs etc.)
Consider whether you have the chance to win the dispute
What is your dispute settlement mode in the contract?
Litigation or arbitration
Location
Nothing mentioned?
Decided for Dispute? – Act Fast!
Let your legal advisor ask the court for a preliminary injunction (to
freeze debtor’s property) Dispute does not finish with winning judgment Enforcement phase You can also consider criminal action
Summary
Do not take the company’s self-introduction at face value
Collect and scrutinise the company’s paperwork
Scrutinise the company operations if possible
Always ask yourself “Is this too good to be true?”
Make personal visit(s) and keep continuous contact
Do not rush
Ideally have a trusted person on the spot
Keep on paying close attention to the recent situation
Local professional advice
Recommended Reading
http://www.eusmecentre.org.cn/content/knowing-your-partners-china
www.eusmecentre.org.cn [email protected]
Centre Introduction
• The EU SME Centre in Beijing is a project funded by the European Union
• To assist European SMEs to export to China and establish, develop and maintain commercial activities in the Chinese market
• Free, confidential information and advice, and practical support services
Centre Services
Ask the expert Consultations Knowledge centre
Trainings Webinars Events
E-learning Databases Hot-desking
www.eusmecentre.org.cn
Stay Connected
Facebook LinkedIn
Twitter YouTube Newsletter
www.eusmecentre.org.cn
