02. Fake / Shell Company

Overview

Worse than a trading company is a pure shell company: no real office, no inventory, no production capacity, sometimes with a virtual or shared registered address. These companies exist to collect deposits (or full payment) and then disappear — closing down or re-registering under a new name to scam the next victim.

How It Works

1. Low-price / rush-order bait — quote far below market, or promise impossibly short lead times, to hook buyers in a hurry.
2. Polished appearance — a slick website, complete documents, and a beautiful sample (which may be a genuine product bought elsewhere).
3. Abnormal payment methods — ask you to pay into a personal account, an offshore account, or a company different from the contract party.
4. Disappear after payment — phone off, WeChat blocked, storefront closed; a while later they re-register under a new name and repeat.

Why It's Harmful

• Direct financial loss — deposit or full payment is gone.
• Nearly impossible to recover — the company is a shell with no assets to seize, and may already be dissolved.
• High cross-border litigation cost — suing in China from abroad is slow and expensive (lawyer fees, notarization, authentication).

Red Flags

• Large registered capital but paid-in capital of 0.
• Recently incorporated (within months) and 0 social-insurance employees.
• Registered address is a virtual/mailbox address (e.g., "XX Tower, Room XX" shared by many companies).
• A price that is absurdly low, or a demand for 100% prepayment with urgent "pay today or lose the stock" pressure.
• Payment requested to a personal account or offshore account.
• Cannot produce real photos of a factory, warehouse, or office.

Solutions

1. Due diligence before ordering

• On Tianyancha/Qichacha check:
  • Paid-in capital — be wary if 0.
  • Incorporation date + social-insurance headcount — new company + 0 employees = high risk.
  • Judicial risks — lawsuits, enforcement actions, default records.
  • Business abnormality — whether they are on the abnormal-operations list.
• Check the change history — frequent changes of legal representative or address are a red flag.

2. Verify operational reality

• Ask for the last 6 months of utility bills, water bills, or payroll records (a real company can produce these).
• Do a live video walkthrough of the warehouse, showing inventory and packing area.
• Ask for real customer references and actually contact them.

3. Payment risk control (most important)

• Never pay a personal account.
• For first orders, keep the deposit at 20–30%.
• Prefer guaranteed channels: Alibaba Trade Assurance, Letter of Credit (L/C), or PayPal (which has a dispute mechanism).
• For large amounts, use an L/C — pay against documents, not in advance.

4. Stage payments

• Deposit → pay a portion after inspection passes → pay the balance against a copy of the Bill of Lading.
• Tie every payment to a verifiable performance milestone.

5. Keep evidence

• Save all contracts, chat logs, payment vouchers, and business-license screenshots for a possible police report or lawsuit.

Tools & Resources

• National Enterprise Credit Information Publicity System: https://www.gsxt.gov.cn (paid-in capital, business abnormality, administrative penalties)
• China Judgments Online: https://wenshu.court.gov.cn (check litigation history)
• China Enforcement Information: http://zxgk.court.gov.cn (check enforcement/default status)