Real Case Study of Dishonest Chinese Companies: Shenzhen Toolswood Hi-Tech Co.Ltd.

A few months ago, we received an e-mail from one of our customers who was scammed by a Chinese company called Shenzhen Toolswood Hi-Tech Co.Ltd (深圳市特斯坞科技有限公司).

In general, Shenzhen Toolswood Hi-Tech Co.Ltd failed to ship him what was ordered after three years of waiting.

In order to help him, we did some investigations of this Chinese company and we were surprised to find the following things.

Company Status

The company – Shenzhen Toolswood Hi-Tech Co.Ltd. – was revoked by Chinese authorities in 2019, during the period of doing business with our client.

The founders of this company also invested in two other companies, Shenzhen Honggu Interactive Network Technology Co., Ltd. (深圳红古互动网络科技有限公司) and Dongguan Sanmu tool Co., Ltd. (东莞市叁木刀具有限公司). However, all these companies were revoked or canceled.

What’s the difference between the two company status – “Revoked” and “Cancelled”?

The revocation of an enterprise’s business license is an administrative penalty on a Chinese enterprise, which means the two companies broke the law and were enforced to be closed by the government.

If a company’s status is “canceled”, it means the owners do not want to do business anymore and apply to the government to stop operating themselves.

Both of these two company statuses mean the company does not exist any longer. No wonder the company hasn’t shipped out the products ordered.

Company features

1. This is a small company with a registered capital of only 100,000 yuan. It has no legal employees, no trademarks, no patents, so it lacks production capacity.

2. This company has no lawsuit, it seems to be in a good situation. But the fact is that if a company is involved in many business activities, it may more or less have some disputes. A company that doesn’t have any record may mean that the company is not developing well.

What should international buyers pay attention to when doing business with a Chinese company?

When doing business with a small company that has very few records, qualifications, and employees like Shenzhen Toolswood Hi-Tech Co.Ltd., you need to be very careful about the following things to avoid property loss.

Before doing business

You need to do as many investigations as possible about this company to prevent you from being scammed, such as company structure & shareholders, intellectual property, related risks, customs registration information, business registration information, change records. If you have problems with doing the search, you can contact us, we are willing to help you.

During the business

1. You need to sign a perfect contract with your suppliers, including the shipping method, payment method, quality control, and so on.

2. You should check the quality of your product throughout the period of the business. Product inspection service can be really useful if it is inconvenient for you to go to the factories in person.

3. It is unwise for you to finish all the payments in advance since if there is something wrong, for example, there is a quality problem, it is unlikely for you to ask your suppliers to rework or refund.

My suggestion is that you can negotiate with your suppliers, and just pay 30% or at most 50% in advance, the remaining payment can be done after delivering. In order to receive the remaining payment, your suppliers are more likely to try their best to produce your products.

Conclusion

In China, there are many dishonest companies. In this case, the company’s status changes during the business.

If the client checks the company’s background earlier, he may suffer less property loss. Fortunately, technology is developing fast. Our team can now update the information of all Chinese companies every day. We can now automatically monitor the credit background of Chinese companies and send out email alerts of any sudden change as soon as the record has been updated in the Chinese government database.

If you are planning to work with a Chinese company for more than half a year, it is necessary to constantly keep an eye on the company’s change records.