The fear of the dragon has kept the government quiet on the growing number of disputes between small and medium Indian businesses and Chinese businesses. Over the last two years, there has been a sharp upsurge in incidents where Indian companies trying to do business with Chinese firms have been cheated or duped.
Alarmed by the rising number of such cases, the Indian embassy in Beijing had even put out an advisory in December last year, warning Indian businesses from entering into financial transactions with unknown Chinese suppliers or firms, without doing due diligence first.
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Strangely, this advisory has been quietly buried. Indian business chambers, which have been actively lobbying for increasing trade ties with China, have also kept mum. "We do not want to upset the Chinese by alleging that Chinese businesses cheat Indians. After all, the number of cases is fairly limited, given the volume of trade between the two countries," argued an Indian trade body representative, who wished not to be identified.
According to data compiled by the Indian embassy in Beijing, the maximum number of cases originated in Henan and Hebei provinces and the municipality of Tianjin. The amount involved in such disputes was $7.84 mn (Rs 34.9 crore) in 2009 and over $4.3 mn (Rs 24 crore) till November 2010, up to which data was available.
The amount pales into insignificance in the context of the $61 billion two-way trade between the two Asian giants, but for the companies involved, mostly small Indian trading outfits, the disputes add up to a tidy sum. The Indian embassy's trade officials have managed to identify several modus operandi adopted by Chinese companies.
In some cases, the Chinese company invites the Indian company to visit China. Just before their departure, the Indian company receives 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. After the visit, the Chinese company goes silent. The Indian company ends up losing cost on transportation, accommodation and the amount incurred for expenditure towards arrangements and gifts.
In other cases, the Chinese counterpart, contacted through online portals, insists on a percentage of the amount as advance. Thereafter, it breaks all communications and no consignment is sent.
In a third type of scam, samples sent before the deal is finalised are of excellent quality. Thereafter, the Indian company places further orders and transfers a percentage as advance payment. It releases a letter of credit (LC) after the consignment lands at an Indian port, which is promptly encashed. Once the consignment is cleared from Customs, it is found to be substandard or totally different.
In some other cases, the Chinese firm refuses to supply goods even after receiving an advance and insists on full advance payment. The Indian importer risks losing the advance if he doesn't pay and the entire amount even if he does!
In yet other cases, Chinese insists on 'Notarisation of the Agreement', the 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 notarisation fee has increased.
Keeping the growing number of such cases, the Indian embassy's trade officials have advised Indian companies to run a credential check on the party they wish to do business with and insist on having registration documents notarised by the embassy. It has also advised that B2B portals are not to be trusted and instead, trade queries should be routed through Indian missions. It has also suggested that all financial transactions be conducted through an escrow account and that Indian firms should not release any LCs without inspecting the actual consignment.
But with political considerations coming into play, this advisory has remained quietly buried, leading to more Indian firms falling prey.
Courtesy: Mail Today