Every year, Mexican and Latin American companies lose millions of dollars to fraud with suppliers in China. These aren’t isolated cases: they’re recurring, well-documented schemes. Knowing them is your first line of defense.
1. The trading company posing as a factory
This is the most common fraud and one of the hardest to detect without on-site verification.
How it works: A trading company presents itself as a manufacturer. It uses stolen factory photos, doctored business licenses, and claims to have its own production capacity. In reality, it subcontracts your order to an unknown factory — or in the worst case, has no factory at all and disappears with your deposit.
Documented case: A European furniture importer paid $40,000 USD (50% deposit) to a supposed factory that turned out to be a trading company with no production facilities. The goods were never delivered.
How to protect yourself:
- Request the business license and verify that the company type is “manufacturing” and not “trading” or “commerce”
- Verify the company through the Chinese corporate credit information system
- Request a factory visit or hire an on-site audit
- If the supplier doesn’t allow visits, that’s a serious red flag
2. Bait-and-switch: perfect sample, deficient production
The supplier sends you a flawless sample, but the mass order arrives with inferior materials, different specifications, or different finishes.
How it works: Samples are manufactured in a “sample room” with special attention to quality. Mass production is done on a different line or subcontracted to a cheaper factory. In some cases, warehouse staff directly substitute the contents with cheaper materials before shipment.
How to protect yourself:
- Conduct a production inspection during manufacturing, not just at the end
- Hire a pre-shipment inspection where an independent inspector verifies the goods against the approved sample
- Establish measurable technical specifications in your contract (weight, dimensions, material composition) — not just vague descriptions
- Keep the approved samples as reference
3. Bank account switching (payment interception)
This is a sophisticated fraud that has cost importers worldwide hundreds of thousands of dollars.
How it works: Scammers compromise the email account of either the buyer or the supplier. They monitor correspondence silently for weeks, waiting for the payment moment. When an invoice is sent, they intercept the email and modify the bank details. The buyer, believing they’re paying the legitimate supplier, transfers the money to a fraudulent account.
Documented data: In an analysis of 44 fraudulent transfers, 84% went to accounts in China and Hong Kong, where money recovery is extremely difficult. Amounts range from $30,000 USD to over $320,000 USD in documented cases.
How to protect yourself:
- Never change payment bank details based solely on an email
- When faced with any bank detail change, call the supplier directly at a number you’ve already verified — don’t use the number that appears in the suspicious email
- Use two-factor authentication on your email
- Establish bank details from the start through an independent channel (video call, for example)
4. Inflated production capacity
The supplier exaggerates its factory size, employee count, and production capacity to win large orders. When it’s time to produce, they can’t meet timelines or subcontract to third parties without quality control.
Consequences: Delivery delays, inconsistent quality (because production was split among multiple factories), and lost sales season.
How to protect yourself:
- Request a factory audit before committing to large orders
- Verify actual capacity: number of machines, production shifts, current orders
- Start with a small test order before scaling up
5. Fake supplier profiles
Scammers create professional websites, use stolen photos of real factories, fabricate business licenses, and create fictitious client references. This is particularly common on B2B platforms.
Warning signs:
- The supplier has no verifiable history
- Prices are significantly lower than any other quote
- They pressure you to send full payment upfront
- They can’t show previous production for your product type
- Their physical address doesn’t correspond to a known industrial area
6. Deposit theft / non-delivery
The most straightforward scheme: the supplier collects the deposit (typically 30-50% of the order) and disappears. Or delivers only a fraction of the order.
How to protect yourself:
- Never pay 100% upfront
- Use staggered payment structures: 30% deposit, 70% upon approved inspection
- Consider using Alibaba’s Trade Assurance mechanism for transactions on that platform
- Verify the supplier’s history and request references you can contact directly
The best protection: independent verification
All these frauds have something in common: they are preventable with independent verification. An inspector or auditor who doesn’t work for the supplier and who verifies the reality of the operation on the ground.
The three main tools are:
- Factory audit — Before working with a new supplier, verify that the factory exists, has the capacity it claims, and operates under acceptable standards
- Production inspection — During manufacturing, verify that materials and processes match what was agreed
- Pre-shipment inspection — Before loading the container, verify quality, quantity, labeling, and packaging
Conclusion
Fraud with suppliers in China is not an urban legend. These are real, documented, and recurring schemes. The good news is that all of them are preventable with the right controls. The investment in independent verification is minimal compared to what you could lose.
Want to verify a new supplier or protect your next order? Contact us for an audit or inspection quote.