Foreign buyers doing business in Yiwu. Photo: CFP

To an unscrupulous overseas buyer at Yiwu’s massive small commodities market in Zhejiang Province, a Chinese merchant, desperate for an overseas sale, must look like an easy mark. 

Police say an increasing number of international scam artists and fraudsters are working the world famous market where seasonal knickknacks, toys, wallets or brooms can be purchased by the container load. 

In 2009, swindlers conned wholesale merchants out of 400 million yuan ($61.8 million), according to investigators.   

Typically, the foreign buyer begins with a couple of successful transactions and then seeks the good faith of the merchant on a larger order leaving only a small deposit. 

Once the freight is on board, the buyer and the goods are gone for good; leaving merchants to swallow the loss and out of the reach of Chinese law. 

A leather products dealer, who asked only her last name Du be used, was scammed for 300,000 yuan by a US merchant with whom she had done business for two years. 

“I had been very cautious, but this time he got me and 40 other sellers. We lost a total of about 8 million yuan,” she told the Global Times of the bitter incident that occurred last year.

Although she can easily dig out a photocopy of the merchant’s passport, Du has no way of tracking him down and forcing him to pay up. 

“All of us here agree, a foreign merchant with $1,000 in his pocket could walk around Yiwu, place a bunch of orders, and scam us for several million, easy!”

Du knows of at least three small factories employing 20 to 30 workers that have been forced out of business after incurring unrecoverable losses. 

In 2009, more than 3,000 proprietors were scammed, or forced to wait for long-delayed payments from 159 foreign trading companies.

The Yiwu police said the numbers of scams and frauds have jumped 30 percent a year in recent years. 

A history of mercantilism

Known as the world’s largest market for small commodities, Yiwu represents low prices and massive orders on just about anything that can be manufactured in a small workshop. 

The city of 1.5 million in central Zhejiang is almost entirely focused on the wholesale of small merchandise. 

Many extended families have opened small factories that produce high volumes of cheap specialty goods for countries and cultures that have little to do with their own. 

Relying on volume, their margins are often razor thin. 

Many of Yiwu’s entrepreneurs have prospered and opened larger factories that require a constant flow of new orders. 

Astonishingly, the small commodities made in Yiwu fill 2,000 containers every day that are shipped to 215 countries and regions. Total trade volume in 2010 reached 62 billion yuan. About 13,000 foreign merchants from 80 countries reside in Yiwu, according to the Yiwu News. 

Yiwu has also been a victim of its own success as other towns around China have copied its formula and skimmed off a large chunk of domestic sales. However, thanks to Yiwu’s international reputation, the city shifted its focus to the foreign market, which now takes up 60 percent of the total trade volume. 

“It’s totally a buyer’s market. The awareness of risk is low, while the need for orders is high,” Gong Weidong, a private detective of economic crimes in Yiwu told the Global Times.

“Most of these transactions don’t have formal contracts. It’s all done with a promise and a handshake that payment will be made in a month or two. Many buyers leave only a small deposit or none at all,” Hu Fengling, a Yiwu-based lawyer who specializes in international trade said.

Cutthroat competition

Hu said competition between Yiwu’s merchants is extremely fierce which further drives down prices and forces merchants to offer easy payment terms in order to seal a deal. 

“Most sellers don’t know the background of their foreign buyers,” said Hu, who has been involved in some overseas debt collection cases. He said once the foreign merchants and the merchandise leave China, it is very difficult to track them down and get the payment.

“In countries with well-established legal systems, it’s possible to collect debts with the cooperation of the government and the courts, but mostly these delayed foreign payments end up with no resolution,” Hu said.

Yiwu’s major trading regions are the Middle East, Africa and South Asia, according to the Yiwu Police. 

When the Middle East and North Africa catch a cold, Yiwu sneezes, observed the Central Zhejiang Daily earlier this month. The number of merchants from these regions has declined 30 percent, reported the newspaper. 

“Many of our foreign merchants are from countries that suffer from political upheaval from time to time,” said Gong, the Yiwu detective. 

He said Yiwu’s merchants are getting ripped off in a number of ways, but “the pure, vicious scam that involves fake passports or bank statements are not the majority.” 

Lawyer Hu believes the global economic downturn has worsened the situation. Many foreign merchants who have been doing business in Yiwu for more than a decade are facing financial difficulties and paying their debts in China may not be a priority. 

An early warning system

“Has anyone heard of the foreign company named Z.M.? They are promising to pay in 35 days on an huge, urgent order. They’ve also placed a large order with my neighbor. They say they have a great transaction record. Can I trust them?” wrote a merchant on a website created by the Yiwu Police’s economic crime division in 2009. 

The platform allows local sellers to seek information about the background of buyers or write warnings about deals they have made that have gone bad. The police will follow up. 

“Our investigation shows Z.M. is not registered,” reads the police reply to the merchant’s inquiry. It also included the name and nationality of the merchant and the valid date of his visa, and his past transaction record. 

The platform has more than 25,000 visits every day. We have successfully prevented and detected 19 scams worth more than 50 million yuan since it was established, notes the platform’s official website.  

Detective Gong agrees that’s not a great record considering bad deals cost merchants well over 400 million yuan last year alone.Getting sellers to participate

Gong is often frustrated with merchants who don’t take the online warnings seriously. He says four overseas trading companies that defaulted on payments last January, had already been tabbed as suspicious.

“Our platform would be more effective if every seller in Yiwu participated in it. Even though we’ve promoted it, many sellers don’t realize the importance of using the Internet to do business,” said Gong.

The leather seller Du has filed a complaint against her defaulting American client, but she has little hope she’ll be able to make him pay. 

“Losing several million is a quite small case here. None of the other 40 sellers would take the lead and chase the debt,” said Du.

Typical scams at Yiwu

An American who had done business in Yiwu for several years places a massive, rush order from 40 Yiwu merchants. Once the freight is on board the merchants discover his Yiwu office has been closed and they’ve lost 8 million yuan.

A Lebanese merchant placed many orders under his new company. Police later found he had previously done business under another company name that had a record of defaulting on payments. 

An Egyptian merchant placed an order for mops worth 80,000 yuan and promised to pay in 26 days. The seller asked for a copy of the buyer’s passport but later found it was expired making it impossible to track the client’s whereabouts in China.