Common Scams when doing business in China

Today’s blog post, I will expose how two very common scams can unfold when you are doing business in China.  While both these scams have been around for over a decade, in the past few years the number of victims has increased dramatically. 

Common Scams when doing business in China

1.) Shanghai Surprise

 

It’s really dangerous when you communicate with your supplier using a free e-mail account.  Perhaps they don't want to pay for a formal email client like outlook, or perhaps they prefer the simplicity of Yahoo and QQ mail.  Regardless of the reason,  they end up using something like "mr.wang@yahoo.com" or "ManagerWang@QQ.com".  When suppliers use these free e-mails they’re often lazy with their passcodes.    And that's how the scam artist gets in the door.

Essentially, the "Shanghai Surprise" scam is as simple as a third party hacker breaking into the supplier's "yahoo account", allowing the scammer to see the communication trail. The scammer will contact the buyers, and say something like 

“Thanks for your order.  Here’s is our updated banking information.  Please send funds, and we’ll release shipment immediately.” 

So the buyer thinks they’re dealing with their supplier who they’ve worked with for many years.  In reality, the factory doesn’t even know that there’s a hacker contacting the foreign buyer.  You send the money, the hacker gets the money, they immediately close their bank account and disappear. 

You contact the seller to ask how the order is going, and you are surprised to learn they haven't started production because they are waiting on the money! Now they’re as surprised as you are. 

Shame on the buyer for not having protocols in place the confirm banking details.

Shame on them for sending money to a private account.

Shame on them for not conducting basic due diligence on the transaction.

 

2.) Zhejiang Screw Job

On the surface, this scam looks just like the Shanghai Surprise. But in the case of this scam, the seller is actually partnering with the hacker to rip off the buyer. 

The supplier essentially gives the password to their email to the hacker and the hacker directs the buyer to send funds to a new account.  When the buyer discovers they have been robbed and raises the issue with the seller, the seller plays dumb and says,  “Oh no, we’ve been hacked!”.

In reality, the hacker is a friend of the factory, and they’re sharing the money.  In that case, the buyer is the mark, and the factory and the hacker are in collusion, in cahoots.  That’s really nasty and extremely hard to prove.  

In the next blog post, I will discuss with you how to avoid scams particularly the Shanghai Surprise and the Zhejiang Screw Job…

About the Author: Michael J. Bellamy

About the Author: Michael J. Bellamy

Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses.  Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.

A featured presenter on China issues at seminars, trade shows and corporate events across the globe.

Learn more about Mike and AsiaBridge Law at
https://www.asiabridgelaw.com/business-advisory-services/

Mike is the author of “The Essential Reference Guide to China Sourcing
(available on Amazon).

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