Jackpot: Two Dishonest Companies In China In A Row

*To protect the privacy of our client, we have changed his name to an alias.

In today’s story, our client Luka – a German foreign trade specialist – came across two companies on the Official List of Dishonest Persons in just three days.

Luka has been in the international business for a few years. He is very cautious when it comes to international trade. This June, Luka was trying to source Chinese suppliers for his customers, and he came across this company called Kingsong Intell Co., Ltd. The company seems to be a good one. It has several registered trademarks, patents and certificates in electric self-balancing scooters.

However, when we checked the legal cases of this company, we found an astonishing fact. The company is enforced by its local court to pay back 25449 CNY, which means the company refuses to pay back other’s money when it is obligated to, so the court has to enforce the company to do it.

This is considered as a signal of high risk when doing business with a Chinese company. The company’s overall credit score dropped from 84 to 60 because of this one case.

At the same time, we found that the company used other company’s pictures to promote its products on its website. However, the Chinese characters on the pictures sold the company out. The pictures actually belonged to Shenzhen King Song Sports Equipment Co., Ltd.

Shenzhen King Song Sports Equipment Co., Ltd. and Kingsong Intell Co., Ltd. are not related to each other on a legal basis. But their names are very similar in Chinese language, and their products are very similar too. So we tried to dig deeper into the relationship between the two companies, and found that Shenzhen King Song Sports Equipment Co., Ltd. was a shareholder of Kingsong Intell Co., Ltd. before 2017. Kingsong Intell Co., Ltd. clearly forgot to update its website.

Since the credit background of Kingsong Intell Co., Ltd is not good enough, Luka tried to look for another supplier. And since King Song Sports Equipment Co., Ltd. is a similar company and an old shareholder of Kingsong Intell Co., Ltd, he thought the company must be bigger and better, so he asked us to check the background of King Song Sports Equipment Co., Ltd.

However, after our research, we found that the credit background of King Song Sports Equipment Co., Ltd is even worse. Its credit score is under 40, which in our definition is a company you can never do business with. Why is that? The company is included in the Official List of Dishonest Persons Subjected to Enforcement. What’s worse, the company’s legal representative got a restraining order on daily expenditure from the local court.

What is the List of Dishonest Enforcees or List of Dishonest Persons Subject to Enforcement?

The List of Dishonest Persons Subject to Enforcement is an official list of people who are enforced by law to pay back money but escape from law enforcement or even violently resist it.

Why does China establish the system of the list of dishonest judgment debtors?

Before 2016, there was no sophisticated social credit system and minor penalties from the government for dishonest persons. When a person refused to pay the money he owed back, there would be literally nothing serious that could happen to him. Because of this, from 2008 to 2012, over 70% of debtors with properties escaped, evaded or violently resisted enforcement. This hurts everyone who wants to do business in China. In this case, the Supreme People’s Court in China declared war on this situation. The List of Dishonest Persons Subject to Enforcement is one of the first steps in building a functional social credit system.

How does the List of Dishonest Persons Subject to Enforcement work?

According to law, now people who are on the List of Dishonest Persons Subject to Enforcement are NOT allowed to perform any of the following activities (restraining order on daily expenditure):

“ (1) Traveling by plane, sleeper car on a train, or second-class on a ship;

(2) Accommodating or making consumption in multi-star-rated hotels, restaurants, night clubs, golf courses, etc.;

(3) Purchasing real-estate property, or building new houses, or renovating homes, or decorating houses in a luxurious manner;

(4) Renting expensive office buildings, hotels apartments, or other office premises;

(5) Purchasing cars that are not necessary for business;

(6) Going on tours or vacation;

(7) Sending children to private schools with expensive tuition;

(8) Spending a large sum to purchase insurance wealth management products;

(9) Travelling on any seats of any trains of G-prefixed electric multiple units (High-speed railways) or any seats of first-class or higher of any other EMU trains, and committing other acts of consumption not necessary for his/her daily life and work.”

Because of these inconveniences in daily life and work, a much larger proportion of debtors started to pay their debts. The establishment of the system of the List of Dishonest Persons Subject to Enforcement is an important step in building a society of good faith and credit.

What if my Chinese business partner is on the List of Dishonest Persons Subject to Enforcement?

Just walk away. In China, the official name for those who are on the Official List of Dishonest Persons is “老赖”, which literally means “shameless rascal”, so you get the idea of who they are. Until they are removed from the list (which means they are trying to change), don’t try to do business with them.

There are currently 1,402,334 in Mainland China that have import & export licenses. 47903 of these companies are on the Official List of Dishonest Persons Subjected to Enforcement. That is about 3.41%. Be careful when you make your business decisions.