China Business News
March 1, 2011
A few years ago, we alerted our membership and the general public to certain scams originating in China. Based on reports from various companies, it appears that these scams have resurfaced again.
Here is how they work and what to watch out for:
1. Certain U.S. companies have received unsolicited inquiries by e-mail from a Chinese website domain registration organization claiming that they are reviewing a request from a third party to register a domain name similar to theirs—typically their domain name with a variant tag like “.com.cn” or “.net.” The organization claims that the third party (usually a bogus company) lacks the proper documentation to prove ownership of the name/brand. Then, they ask the U.S. company to hire them to register their domain name in different variants to prevent this third party from stealing their brand. If the U.S. company does not respond, they threaten to approve the bogus third party’s application.
This is a scam designed to compel U.S. companies to spend a small amount of money to register the many possible domain name variants of their company’s legitimate web domain. Once the U.S. company sends them the money, they do NOT hear back from the registrar and none of the domain names in question are registered.
2. Some smaller U.S. manufacturers have received inquiries from Chinese companies claiming that they wish to place large orders (US$1-5 million) of manufactured products (usually commodity-type). Some of these Chinese companies falsely claim to be subsidiaries of large state-owned enterprises. They proceed to negotiate in regular trade terms. Once the terms are settled, the Chinese company asks the U.S. executives to visit China to ink the deal. Sometimes, they will ask them to bring gifts (a customary practice in China) for the signing ceremony. When the U.S. executives arrive in China, the Chinese company tells them that a signing ceremony has been arranged. The ceremony is postponed, however, and the U.S. executives are persuaded (or even coerced) to provide additional money, either through wire transfers or ATM/credit card advances. Although wary of doing so, many U.S. executives give in, feeling that the opportunity is too significant to pass up and therefore worth the risk. Some even spend tens of thousands of dollars in attorney/consulting fees, which often do not lead to detection of the scam.
Our advice is to ignore these mass mailing scams. If you do, they should discontinue.
For further information regarding scams and known offending companies, please contact our office at firstname.lastname@example.org or 312-368-9911.
New Regulations for Representative Offices
March 1, 2011
Many foreign companies have no legal status in China but still maintain representative offices (ROs). An RO allows a company to have a presence in China, but an RO is not supposed to engage in any for-profit activities. There has been some abuse of this system by some companies that did not want to go through the process of applying for permits to do business. Instead of obtaining permits, those companies conducted business in violation of their limited authority as ROs. To crack down on those violators, China issued new regulations governing ROs. The regulations tighten the rules for the establishment and operation of an RO by stating the activities that an RO may engage in. In addition, the regulations now have more teeth due to the increased fines for violations. The regulations are effective March 1, 2011....(click to see more information)