Sourcing in China? – How bad is it really in China?
In the big picture, I think the situation is improving. Factories are getting better at communications and quality control. The Chinese courts are more serious about enforcing intellectual property rights (even if those rights belong to non-Chinese.) And the central government is declaring war on bribery and corruption. BUT, things are still a mess and China has a long long long way to go.
Here are some examples if you want to get a feel for just how bad things are at this time:
This article in “Week in China” explains how the corrupt and wealthy can buy themselves a shorter jail sentence.
Article 78 of the country’s Criminal Law specifies that prisoners who have performed “major meritorious services” can have their sentences commuted. Among the services in this category are “major technological inventions or creations and innovation.
For a fee (of course) there are even 3rd party service provides who will “invent an invention” and file it under the prisoner’s name to help reduce the jail time.
Thinking about investing in China? Would you trust a partner who has a “get out of jail free card”?
This article in the China Daily explains who corrupt officials have come up with innovative ways to hide how they pocketed bribes.
Calligraphy associations serve as a hotbed of corruption. Calligraphy has long been revered as an art in China, but works of calligraphy have been used to legitimize bribes from businesspeople who “purchase” pieces by officials at exorbitant prices.
When the anti-corruption watchdog in Jiangsu province investigated collusion between real estate developers and Jiang Guoxing, deputy head of the press and publication bureau in the province, the authority found that developers had paid 100,000 yuan ($16,250) for Jiang’s handwriting.
It’s great that China is cracking down on bribery, but as this article shows, officials will get creative when it comes to accessing that dirty money and corruption is still an everyday part of business in China.
Thinking about investing in China? Are you going to outsmart these guys? Here is a great example from China Law Blog about how easy it is for the Chinese partner to outsmart their foreign partners when the foreign partner isn’t paying close attention to the details:
At least once a year, one of our China lawyers has to tell a client that the company or the IP the client thought it had in China simply does not exist.
Years ago, we were retained to help a U.S. company whose China general manager had stolen funds from its China subsidiary. Our investigation quickly revealed there was no China subsidiary. No China entity had ever been formed even though the China operations were manufacturing tens of millions of dollars of product a year, with around 100 “employees.” The general manager had lied about having formed a WFOE, no China taxes had ever been paid, and every “employee” had been working illegally.
Would you feel safe in a counterfeit elevator!
“Week in China” writes:
China has had many counterfeiting scandals over the years, but the potential for falling from a great height or being trapped in a confined space quickens the pulse as far as any anxiety about unsafe elevators is concerned. Or as Jingzhou city police officer, Zhou Yang told Xinhua of the counterfeit manufacturers: “After looking at the elevators made by them, I feel really scared just thinking about the ones we normally ride.”
A crackdown has led to the seizure of 30,0000 counterfeit elevator parts and more than 10,000 documents and packaging materials marked with fake trademarks. But it’s the tip of the iceberg.
Speaking of knocking off highly engineered products and brands… China Just Knocked Off The Range Rover Evoque And Jaguar Land Rover Is Not Happy
A Chinese store where no Chinese are allowed?
The Chinese who do have intellectual property to protect are scared of even other Chinese! What does that say to foreign businesspeople who are worried about IP protection in China?
BBC writes about this store in China that doesn’t allow Chinese inside. I assume they have fashion designs targeted at international buyers and they don’t want their Chinese competitors to see their secret sauce. This is not a new phenomenon. For as long as I can remember, at the major trade shows around the world and in China, Chinese factories train their sales people to keep other Chinese out of the trade show booth. Some of the exhibitors even put their booth behind a curtain and only let “qualified buyers” inside.
In my opinion, it’s almost impossible to prevent knock offs with those kind of amateur methods. Here are some techniques that actually work:
Want an example of just how dangerous and widespread “corner cutting” is in China in terms of quality and bill of material?
Want examples of greed and the sad state of ethics?
Because of the social pressure to have a male offspring, even Children can be bought and sold in China! According to police statistics at least 15,000 children are abducted in China every year, though activists say the number is actually much higher.
Week in China writes:
In January an obstetrician from the northwestern province of Shaanxi was handed a death sentence for selling seven newborn babies to dealers. His scam had been to tell parents their children had been born with severe congenital health problems.
If certain elements have no problem doing this to their own babies, do you think they will hesitate to take advantage of a foreign adult?!
In March, the police announced they had saved 382 infants and arrested 1,094 adults when they broke up four major baby-trafficking groups. One of these traffickers, who set up a fake adoption agency, admitted that he had bought babies from impoverished families in western China for about Rmb2,000 each and then sold them on for three times the price.
In conclusion…one more disgusting example of just how bad things still are in China…
Do you smell a rat? No, but I can taste it!
In this article “Week in China” exposes that a criminal gang collected rodent and even rat flesh and then passed it off as lamb to customers. If Chinese scams will go so far as to sell rat-tainted fake meat to other Chinese, do you think they would even hesitate to cut corners on the quality of your overseas order?
Make sure you really know your partners before you engage Asia for business.
Now some good news. If you follow these basic protocols you will avoid the vast majority of dangers:
Safe Sourcing Essentials
Use a bilingual contract or purchase order (PO).
Name on the bank account, business license and contract should be the same.
Don’t release final payment until 3rd party QC has been completed!
It’s not possible to buy famous brands (like Apple or Gucci) at a low price in China!
Apply these safety measures or don’t buy from overseas.
Need support? Visit the Sourcing Service Center.
Wishing you successful China sourcing!