Why do mainland Chinese companies prefer foreign trade and feel tired of domestic sales?

In the ever-competitive world of manufacturing, Chinese companies, especially small and medium-sized factories, face constant pressure to balance trust, risk, and profitability. But what happens when trust becomes a weapon?

A recent scam involving a popular Douyin (Chinese TikTok) influencer revealed just how vulnerable Chinese companies can be to unethical practices—and why improving business culture and contract enforcement must become top priorities.

How One Douyin Influencer Scammed Millions from Chinese Companies

There was a “fairy-like” influencer on Douyin (Chinese TikTok) who scammed many plywood factories in Shandong—amounting to tens of millions of RMB. Many of these factories are family-run businesses, and the incident was so severe that it drove many small and medium-sized factories into bankruptcy.

The Scam Strategy That Crushed Family-Owned Chinese Companies

Here’s how the scam worked:

• A plywood sheet costs ¥80 to produce.

• She bought it at ¥90 (over market price), then sold it at ¥70—below cost.

• She placed massive orders—up to 10,000 sheets at once—instantly creating an illusion of high demand and big opportunity.

• Some factories received 50% upfront; others, incredibly, paid in full up front, absorbing all the risk.

• After securing the inventory, she quickly flipped the goods at a loss to generate cash flow, while building trust with the factories.

Once these Chinese manufacturing companies felt secure, she launched her “kill move”: she ordered in bulk, delayed payments, resold the goods cheaply, and vanished, leaving factories crushed under unpaid invoices.

Why This Scam Hit Chinese Companies So Hard

This is the type of scam Chinese factories fear most because it’s nearly impossible to prevent. Doing business in China often means building personal relationships and goodwill. Everyone offers payment terms—installments, deferred payments. If you don’t offer terms, can you even get business? So, are payment terms really unacceptable? Not at all—factories are fine with them as long as payments are made on time. This wasn’t just a financial blow; it revealed systemic vulnerabilities in how many Chinese companies do business:

1. Overreliance on Personal Trust Instead of Contracts

In much of China’s manufacturing ecosystem, personal trust and guanxi (relationships) often take precedence over strict legal contracts. This culture of goodwill works—until someone exploits it.

2. Flexible Payment Terms as a Double-Edged Sword

Payment terms are a common practice. Chinese companies routinely offer instalments or deferred payments to secure business. It’s an essential tool in a competitive environment—but it only works when both parties act in good faith.

3. Weak Legal Consequences for Breach of Contract

Perhaps the most serious problem is the lack of meaningful consequences for breaching agreements. In China, defaulting on payments rarely leads to proportionate penalties. Unlike in many Western countries, legal enforcement is slow, costly, and often unenforceable for smaller firms.

But here comes the real killer: Chinese business people often lack a sense of contract and accountability. The punishment for defaulting is grossly disproportionate to the harm done.

That’s not the case in foreign business circles—especially in Europe and the U.S. I once discussed this with a client, and he said he would never breach a contract. Why? Because doing so would affect his credit limit, company reputation, pension, his children’s education subsidies, and healthcare. He would lose everything that comes from government support.

It’s not that foreign systems are inherently better—it’s that the cost of doing bad things is too high.

What Chinese Companies Can Learn from Global Business Norms

This vulnerability isn’t necessarily about “right” or “wrong” systems. Rather, it’s about incentives and consequences. In many Western countries, like the U.S. and Europe, the cost of dishonesty is extremely high.

As one European client put it:

“I would never breach a contract—not because I’m a good person, but because I’d lose my business credit, my government benefits, my kids’ education subsidies. It’s not worth it.”

This mindset creates a business environment where contracts are sacred, not optional. When systems penalize dishonesty severely, companies are incentivized to operate with integrity.

Conclusion: Building a Safer Future for Chinese Companies

The Douyin scam wasn’t just a one-off event—it was a wake-up call for Chinese companies across the country. Trust is important, but blind trust without enforceable agreements is a recipe for disaster.

To compete globally and survive domestically, Chinese companies must blend traditional relationships with modern protections. Only then can China’s incredible manufacturing base evolve from vulnerable to truly resilient.