Subject- Advisory for Indian small and medium enterprises doing/interested in doing business with Chinese companies
[Note: The Advisory has been issued to protect the interests of Indian small and medium enterprises. It is intended to enhance the commercial cooperation between India and China by addressing some of the risks faced by Indian SMEs.]
Based upon the complaints received from small and medium enterprises in India, a surge in cases of trade disputes between Indian and Chinese companies has been noticed by the Embassy in the last few months. It has been noticed that under the jurisdiction of the Embassy of India, the maximum cases of trade dispute are originating from the provinces of Henan and Hebei and the municipality of Tianjin. The amount involved under these cases of trade dispute was in excess of USD 78,43,000 in 2009 and 54,34,162 in 2010 (Jan-Nov). The disputes primarily follow the broad trends as mentioned below:
i. An Indian company is contacted by the Chinese company for business. After several rounds of emails and phone calls, the Chinese company invites the Indian company to visit their facility in China and meet the executives of the Chinese company and senior officials of the local Government, projecting this as an apparent exercise at confidence building. The Indian company agrees to visit China. Just before the departure of executives of Indian company, they receive a request from the Chinese company to bring cash for arrangements and gifts for the senior executives and other local officials, citing Chinese cultural values. The Indian company agrees to get cash and gifts and visits the facilities and meets the executives of the Chinese company. The Indian company is promised of excellent cooperation by the Chinese company. After the Indian company is back to India, the Chinese company goes silent and stops replying to the communications of the Indian company. The Indian company ends up losing cost on transportation, accommodation and the amount incurred for expenditure towards arrangements and gifts.
ii. The Indian company, wishing to import products from China, finds a Chinese exporter from B2B portals and other online sources. The Indian company contacts the Chinese company. Thereafter, the Chinese company insists that the Indian company should send a percentage of the total amount as advance. The Indian company, unaware of the credentials of the Chinese company, makes the advance payment. The Chinese company receives the payment and thereafter, breaks all the communications with the Indian company, let alone sending the consignment to the Indian company. The Indian company ends up losing the advance payment.
iii. The Indian company contacts/is contacted by a Chinese company though various online sources. After the deal is finalized between the two parties, the Indian company requests for a sample of products from the Chinese company. The Chinese company duly sends the samples which are found to match the desired standards. Thereafter, the Indian company places further orders with the Chinese company and transfers a percentage as advance payment. It is agreed between the two parties that the Indian company will release LC after the consignment is received at the designated Indian port. The consignment reaches the Indian port and after inspecting the bill of lading, Indian company releases the LC. Till this time, the Indian company has not seen the actual product. The Indian company gets to see the actual product after the consignment is released by Custom. After the consignment is delivered to the Indian company, it is found that the product is sub-standard or totally different than what was agreed upon in the agreement between the two companies. The Indian company complains to the Chinese company about the spurious quality of the consignment to which, the Chinese company puts the blame on the storage conditions and refuses to accept that it had sent spurious products. The Indian company ends up losing the advance and the amount towards LC.
iv. The Indian company contacts/is contacted by a Chinese company though various online sources. After several rounds of emails/phone calls both the parties conclude an agreement whereby the buyer (the Indian company) has to make an advance payment after which, the Chinese company will send the consignment to India. After the Indian company makes a percentage of the total amount as advance payment, the Chinese company goes slow on communicating with the Indian company and after repeated requests by the Indian company to send the consignment, asks the Indian company to make the remaining payment. The Chinese company cites excuses such as the Indian company failed to make advance payment in time, the cost of the raw material has increased, their supplier failed to deliver products in time, etc. The Indian company risks losing the advance payment if it does not make the full payment and losing entire amount in case they make the full amount and the Chinese company refuses to supply the goods.
v. The Chinese company, before or after finalization of the deal, insists on ‘Notarization of the Agreement’, cost of which has to be shared equally between both the parties. The Indian company duly pays up its share. After their return to India, the Indian company is informed that they need to pay extra since the notarization fee has increased. The Indian company risks losing its share of notarization fees if it does not pay the extra fee and total amount if it pays up the extra fee.
2. In view of the above mentioned cases of trade dispute, the Embassy recommends the following to the Indian companies doing business/interested in doing business with Chinese companies:
i. The Indian company must run a complete credential check on the prospective Chinese partner. The Embassy can provide a list of companies that provide credit certification services in China. However, credit certification service, is a paid service and the Indian company has to select one from the list and is solely responsible for its decision.
ii. The Indian company should desist making an advance payment until and unless the quality and the quantity of the product is ensured. If at all there is a need for advance payment, both the parties should operate through an ‘Escrow account’ or ‘Bank guarantee’ route. The Indian company should insist on guarantee before making advance payment to its Chinese partner.
iii. The Indian company must not release LC without inspecting the actual product in the consignment. A provision must be incorporated in the agreement that provides releasing LC only after the Indian company is satisfied with the quality of the product in the consignment.
3. In short, the list of DOs and DON’Ts for Indian companies interested in doing business with Chinese companies is as follows:
DOs for Indian Companies
i. Check the credibility of the Chinese company on which import orders are placed.
[Note: The Embassy can provide a list of companies that provide credit certification services in China. However, credit certification service, is a paid service and the Indian company has to select one from the list and is solely responsible for its decision.]
ii. Request Chinese counterpart to produce government approved identification document (Passport Copy or ID card) to certify identity of the individual. A copy of this document needs to be attested by the Chinese Ministry of Foreign Affairs and the Embassy of India / Consulates.
iii. Include arbitration clause in contract. The contract should be in English. The Indian company in consultation with the Chinese company could include a clause in the contract which provides for release of LC only after verification of quality and quantity of goods by an internationally accredited inspection agency at destination port.
iv. Procure proof of existence of Chinese company (company registration document) duly certified by Chinese Ministry of Foreign Affairs and Embassy of India / Indian Consulates in China.
v. Request Chinese company to produce Quality certificate for any product imported. This certificate should be duly authenticated by the Chinese Ministry of Foreign Affairs and the Embassy / Consulates in China.
vi. Refer trade queries to the Embassy of India or the Consulates General of India instead of B2B companies.
vii. Be cautious while entering into business negotiations or contracts with Chinese companies located in Hebei (Shijiazhuang), Henan (Zhengzhou and Luohe) and Tianjin.
[Note: A large number of trade disputes that have been brought to the notice of the Embassy are related to these cities.]
viii. Physical verification of the goods to be carried out physically by the Indian Company at the point of loading in China.
ix. Insist on Sight Letter of Credit.
i. Indian companies are requested to desist from placing orders on Chinese companies listed on B2B sites in India and China.
ii. Advance payment through bank transfer is discouraged; unless the credibility of the Chinese company has been verified.
iii. Do not fall for offers of cheap products from the Chinese companies.
4. Placed below is the list of Chinese companies which were involved in cases of trade dispute with Indian companies in 2009 and 2010. Indian companies are advised to be extremely cautious in any kind of business dealings with the Chinese companies as mentioned below till the settlement of outstanding issues.
List of Chinese Companies involved in trade dispute with Indian companies in 2010
· M/s Zhengzhou Goldstar Chemical Co. Ltd (Three cases of trade dispute with Indian companies)
· M/s Hebei Yagang Import & Export Co. Ltd.
· M/s Puyang Yifeng Material Import & Export Co. Ltd.
· M/s Mgenn Group Shandong Litong Bio technology Limited Company Limited
· M/s Shandong Tianxing Railway Engg. Co. Ltd.
· M/s Zaozhuang World Chemicals Co. Ltd.
· M/s Hainhlu Yuan Agar Agr. Industry & Training Company Limited, Hainan
· M/s Shijiazhuang Tianen Chemicals Co. Ltd
· Hebei Yagang Imp. Exp. Co. Ltd.
· Hebei Yonghue Chemicals Industries Import & Export Co. Ltd
· Hebei Jinsen Chemicals Imp. Exp. Co. Ltd
· Hongxinweiye ( Tianjin) Chemicals Co. Limited
· M/s Henan Premtech Enterprise Corporation, Zhengzhou, Henan
· M/s Hebei Yuijiang Imp. & Exp Company Limited
· M/s Wuhan Lan Sun Technology Co. Limited, Wuhan, Hubei
· M/s Tianjin Minte Chemical Import and Export Co.. Ltd, Tinjin
· M/s Sichuan Neijing Songlin Silk Company Limited, Sichuan
· M/s Xian Moatong Import & Export Company Ltd. Shanxi Province
· M/s Qingdao Doublestone Industrial Co. Ltd, Qingdao
· M/s Shijiazhuang Lingyua Chemical Co. Ltd., Hebei
· M/s China Shijiazhuang Tuofa Import & Export Company, Hebei
· M/s Luohe Chemtee Products Company Limited, Henan (2 cases of trade dispute with Indian companies)
· M/s Beijing DHP Chemicals Eng. Co. Ltd, Jinma
· Cosder International Group Limited, Hong Kong
· Shijiazhuang Huanqiu Chemicals Co. Ltd
· M/s Lantian Auto Wheel Factory, Lianyungang, Jiangsu Province
List of Chinese Companies involved in trade dispute with Indian companies in 2009
· M/s Foshan Kelong Trade Corporation Ltd.
· M/s Xiaman Aoxing Imp & Exp. Ltd, Xiamen City
· M/s Chinalco Henan Aluminium Fabrication Co. Ltd.
· M/s Qingdao Xindeyi Logistics Co. Ltd., Qingdao
· Quingdao Doublestone Industrial Co. Ltd., Qingdao
· M/s Guangdao Medicines & Health Products Imp. & Exp. Corporation, Guangzhou
· M/s Nanjing Zhongsende Import & Export Trade Co. Ltd, Nanjing
· M/s Heating Machine Co. ltd.
· M/s Zhejiang Xingyi Textile Co. Ltd.
· M/s Kuming Huaduan Import & Export Co. Ltd
· Nanhai Arts & Crafts
· M/s Fujian Jinfeng Import & Exp., Fujian
· M/s Laiwu Aotaike Zinc Oxide Co. Ltd. Laiwu City
· Export Changzhou Chemical Factory
· M/s Tinjin Yue Xang Industries & Trading Co, Ltd
· M/s Hiltes Group & Company Ltd.
· M/s Cuangdong Medicine & Health Products Import & Export ,Guangzhou City
· M/s Nadeek Mechanical Equipments Corporation Ltd.,
· M/s Shenzen Mei Do Industrial and Commercial Company, China
· M/s Yihongjiawei Cemented Carbide Cutting Tools Co. Ltd, Hunan
· M/s Zhengzhou Flyworld chemicals Co. Ltd.
· M/s Zhengzhou Goldstar Chemicals Co. Ltd. (2)
(Dec 21, 2010)