Due diligence is essential. The only way to reduce risks is to spend time and resources to scrutinise every aspect of your potential partner’s business, to verify that the potential partner is legitimate and properly established, has a solid financial foundation, and is operationally capable of fulfilling your needs. Searching the company on web engines is not enough, although some potential red flags may already be triggered in this way, for instance if the company is not easy to find, or if there is no Chinese version of the website (indicating the legal Chinese name of the company). Other key steps include:

• Ask for a copy of the company’s business license.
• Verify the validity of the information included in it, e.g. the company’s tax number and whether the name and business scope showed on the business license perfectly matches that used in the business contracts. IMPORTANT: in China, company names in English have no legal value! Only those in Chinese do.
• Verify whether your contact person is allowed to negotiate on behalf of their company.
• Verify that the bank account provided belongs to a bank in the same jurisdiction of the company, and it does not belong to an individual.
• Verify the company stamp (chop): Chinese legal chops have a standardised shape, i.e. circled, red, with a star in the middle; other shapes of chops are not valid (see FAQ “How can I know if the chops used by Chinese companies are valid?).
• Avoid paying in advance, and instead use safer payment methods such as letters of credit which are commonly used in China (see FAQ “Which is the safest payment method to use in transactions with China?”)
• If possible, visit in person the premises of your partner and conduct an on-site inspection of the goods before they actually leave the Chinese port. Alternatively, third-party professional agencies may be contracted for this purpose.
• Finally, get in touch with the embassy/chamber of commerce of your country in China for further advice.

The EU SME Centre receives, on a weekly basis, emails from EU SMEs that have been scammed when purchasing goods from China. In the majority of cases, such scams could have been avoided with the above steps. The EU SME Centre can assist in conducting free-of-charge, informal background checks on potential partners. For major transactions and complex deals, it is always recommended to seek professional legal advice from law firms established in mainland China.