What Is Deposit (定金) Fraud and How Does It Happen?
Deposit fraud is the most common type of financial loss international buyers face in China trade. The pattern is consistent:
- You negotiate a deal. The supplier offers competitive pricing, sends attractive product samples, and communicates professionally.
- They request a deposit — typically 30%. "Standard practice in China," they say. "We need the deposit to purchase raw materials and start production."
- You wire the money. US$5,000, US$15,000, sometimes US$50,000 or more.
- Communication slowly breaks down. Excuses start: factory holidays, COVID delays, customs issues, raw material price increases. Then they stop responding entirely.
- The money is gone. No product ships. No refund arrives. Your emails and WeChat messages go unanswered.
Under PRC law, a deposit (定金, dìngjīn) is legally distinct from an advance payment. A proper 定金 carries specific legal protections: if the party receiving the deposit fails to perform, they must return double the deposit amount. This is codified in Articles 586–588 of China's Civil Code and is one of the strongest legal tools available to defrauded buyers.
⏱️ The First 72 Hours Are Critical
After discovering the fraud, the supplier may already be moving assets — transferring money out of corporate accounts, dissolving the company, or changing bank records. Every hour of delay reduces your chance of recovery. Contact us immediately so we can begin the asset preservation process.
Step-by-Step Recovery Plan for Deposit Fraud
This is the exact same framework we use with clients who have been defrauded of deposits. Each step builds on the previous one. Do not skip steps or reverse the order.
1 Stop All Further Payments Immediately
If you have any pending transfers to this supplier — cancel them. Contact your bank and place a stop on scheduled payments. Even if the supplier promises "just one more payment will fix everything," do not send more money.
2 Preserve Every Piece of Evidence
Do not delete anything. Screenshot every WeChat conversation, back up email threads, save the SWIFT transfer receipt showing the beneficiary bank account and amount. This evidence becomes the foundation of your legal case.
- Back up WeChat to PC using WeChat's official backup feature
- Export emails as .eml files with full headers
- Save the contract (especially the clause mentioning 定金)
- Record any voice messages and phone call summaries
3 Send a Formal PRC Law Demand Letter
A properly drafted demand letter (律师函, lǜshī hán) from a PRC-licensed attorney on law firm letterhead is remarkably effective. It signals seriousness. Chinese suppliers who ignore foreign buyers' emails will often respond to a Chinese attorney's demand letter because they know what comes next: asset freezing, litigation, and potential criminal liability.
Our demand letters typically cite the double-deposit rule under Article 587 of the Civil Code and give a clear deadline — usually 7 business days. Roughly 40% of our deposit fraud cases resolve at this stage without needing litigation.
4 Apply for Asset Preservation (财产保全)
If the demand letter does not work, the next step is an emergency asset preservation order. This is a court order that freezes the supplier's bank accounts before you file a formal lawsuit. Under PRC civil procedure law, you can apply for property preservation immediately — you do not need to wait for the court to decide the merits of your case.
The key benefit: the supplier suddenly cannot access their bank account. They cannot pay suppliers, cannot pay employees, cannot operate. This creates enormous pressure to settle — and quickly.
To apply, you need: (1) the supplier's registered name in Chinese, (2) the bank account details you wired to, and (3) a security deposit (typically 10–30% of the frozen amount, refundable if you win).
5 File CIETAC Arbitration or Chinese Court Litigation
If your contract specifies CIETAC (China International Economic and Trade Arbitration Commission), you must follow that clause. CIETAC arbitration is faster than court — cases typically conclude in 3–6 months — and CIETAC awards are enforceable internationally under the New York Convention (which applies in 170+ countries).
If your contract specifies Chinese court jurisdiction (or is silent on dispute resolution), you can file directly in the supplier's local People's Court. Court proceedings take longer (6–12 months typically), but the filing fees are lower.
6 File a Criminal Complaint for Fraud (If Applicable)
In clear fraud cases — where the supplier never intended to produce goods at all — a criminal complaint to the local Public Security Bureau (公安局) can be an additional leverage point. The PSB's economic crimes division can freeze accounts, detain suspects, and conduct investigations that private lawyers cannot. However, the PSB only accepts cases with strong documentary evidence and amounts exceeding RMB 3,000 (approximately US$400).
Red Flags: How to Spot Deposit Fraud Before You Pay
| Normal Supplier | Red Flag Supplier (Likely Fraud) |
|---|---|
| Accepts deposit in stages — 10–20% to start, rest tied to milestones | Demands 50%+ deposit upfront with no milestone structure |
| Sends you to corporate bank account matching the company name on the contract | Asks you to wire to a personal account, a Hong Kong shell company, or a "friend's" account |
| Provides business license, factory address, and welcomes a video call | Refuses to share business license, factory location is vague, no video call possible |
| Communicates consistently and gives realistic production timelines | Gives unrealistically short timelines, then starts making excuses after deposit received |
| Agrees to bilingual contract with clear dispute resolution clause | Insists on their own template in Chinese only, or refuses to sign a contract at all |
| Presence on Qichacha (企查查) confirms active business registration | Not listed on Qichacha, or listed but with recent legal disputes and address changes |
The Legal Basis for Deposit Recovery Under PRC Law
China's Civil Code (民法典) provides strong protection for deposit payments. The relevant articles:
- Article 586: A deposit contract takes effect upon actual delivery of the deposit. The amount of the deposit shall not exceed 20% of the total contract value.
- Article 587 (Double-Deposit Rule): If the party receiving the deposit fails to perform its obligations under the contract, it shall return double the deposit. If the party paying the deposit fails to perform, it loses the deposit.
- Article 588: The deposit rule and liquidated damages cannot be applied simultaneously. The injured party must choose one remedy.
This means: if you paid a 30% deposit of US$15,000 on a US$50,000 order, and the supplier failed to deliver, you may be entitled to recover US$30,000 (double the deposit) — not just your original US$15,000 back.
✅ Strong Deposit Fraud Case Checklist
- Signed contract that specifies 定金 (not 订金 or 预付款) and the amount
- SWIFT receipt showing payment to the supplier's corporate account
- WeChat or email records confirming receipt of deposit and production timeline
- Evidence that the supplier cut off communication (screenshots of unanswered messages)
- Supplier's business license or Qichacha registration information
- Any acknowledgment from the supplier that they owe you money (even an apology counts)
Realistic Recovery Timeline
| Stage | Typical Duration |
|---|---|
| Demand letter response | 3–7 business days |
| Asset preservation order (emergency) | 24–72 hours (court review) |
| Negotiation / settlement (if demand letter works) | 1–3 weeks |
| CIETAC arbitration (full process) | 3–6 months |
| Chinese court litigation (full process) | 6–12 months |
| Enforcement (if supplier refuses to pay after judgment) | 1–3 months |
In practice, the majority of deposit fraud cases settle within the first 2–4 weeks because asset preservation creates immediate financial pressure. The supplier cannot operate with frozen accounts.
⚠️ If the Supplier Offers a Partial Refund
Be very careful. A partial refund can create a legal argument that you accepted a settlement and waived further claims. Never accept a partial refund without first consulting a PRC attorney. We can help you structure a settlement agreement that protects your right to pursue the remaining balance.
What NOT to Do When Your Deposits Disappears
- Do not threaten or harass the supplier. If they can prove you made threats, they may file a counter-complaint. Keep all communications professional and fact-based.
- Do not send more money to "unlock the situation." This is a common fraud escalation tactic. One more payment will not make things right — it will simply increase your losses.
- Do not post public accusations on social media. In China, this can backfire legally. Defamation complaints by the supplier can delay or complicate your actual legal case.
- Do not wait. Every day that passes allows the supplier to move assets, close accounts, and disappear further. The strongest cases are initiated within 72 hours of realizing the fraud.
Frequently Asked Questions
Yes, but it is harder. Under PRC contract law, a contract can be formed through conduct — including WeChat messages and email exchanges that demonstrate agreement on key terms (product, quantity, price, delivery). However, without a signed contract, you lose the double-deposit rule under Article 587 and must rely on general breach of contract principles. Contact us for a case-specific assessment.
Cases involving Hong Kong accounts are more complex but not impossible. If the supplier's office or factory is in mainland China, Chinese courts can still assert jurisdiction. However, enforcing a judgment against Hong Kong assets requires a separate recognition proceeding. We frequently handle cross-border cases between mainland China and Hong Kong and can advise on the appropriate strategy.
It can be both. Contract fraud (合同诈骗罪) is a criminal offense under Article 224 of China's Criminal Law, punishable by up to life imprisonment in severe cases. However, the Public Security Bureau distinguishes between criminal fraud (where the supplier never intended to perform) and civil breach (where the supplier intended to perform but could not). Your attorney can advise whether your case meets the threshold for a criminal complaint.
Legal fees vary by case complexity and amount in dispute. Generally, demand letters are the least expensive option (a few hundred dollars), asset preservation requires a security deposit (typically 10–30% of the amount to be frozen), and arbitration or litigation involves filing fees plus attorney fees. We offer flexible fee structures including contingency arrangements for strong cases. Request a free case review for a specific estimate.