Embezzlement or Fraud? Understanding the Difference Under Chinese Criminal Law in International Trade

Published on 06/02/2026  |  By Lyu, Attorney-at-Law (PRC)

Wuxi is a relevant commercial location for international buyers sourcing from China. Wuxi has a strong industrial base with electronics, semiconductor-related and machinery manufacturing activity. A dispute involving a supplier in this market should be considered in light of both the contractual relationship and the practical characteristics of the local supply chain.

By Qiang Lyu, Attorney-at-Law

Local Supply Chain Risks in Wuxi

International buyers dealing with Wuxi companies may be sourcing products or services connected with electronics, machinery, semiconductors and industrial manufacturing. Typical issues may include technical specification disputes, quality disputes, OEM claims and delivery problems. Whether a particular issue gives rise to a legal claim depends on the contract, evidence, applicable law and the identity of the parties.

Wuxi is located in Jiangsu and is supported by a sophisticated industrial supply chain in southern Jiangsu. For cross-border transactions, these commercial circumstances can be useful background when assessing supplier verification, contract enforcement and dispute-resolution options.

In international trade and cross-border business transactions, disputes involving goods, funds, entrusted property, or commercial assets occasionally arise. When one party refuses to return entrusted property or obtains assets through deceptive means, foreign businesses often ask whether the matter constitutes a civil dispute or a criminal offense under Chinese law.

Two criminal offenses that are frequently confused are Embezzlement and Fraud.

This article provides a brief overview of the crime of embezzlement under Chinese law and explains how it differs from fraud in commercial practice.

What Is Embezzlement?

Under the Criminal Law of the People’s Republic of China, embezzlement generally refers to a situation where a person unlawfully appropriates property that was originally entrusted to him for safekeeping, or property that was found or discovered, and refuses to return it after a demand for return.

The key characteristic of embezzlement is:

The property was initially obtained lawfully, but the possessor later develops the intention to keep it unlawfully.

Unlike fraud, the property is not acquired through deception at the outset. Instead, the unlawful intent arises after lawful possession has already been established.

Elements of Embezzlement

1. Lawful Initial Possession

In international trade, this may include:

  • Warehoused goods entrusted to a logistics provider;
  • Products held by an agent or distributor;
  • Commercial samples provided for inspection;
  • Equipment temporarily entrusted to a business partner;
  • Funds or assets held on behalf of another company.

In such situations, possession is originally lawful.

2. Subsequent Intent to Illegally Appropriate the Property

For example:

A foreign supplier entrusts goods to a local distributor for temporary storage. When the supplier later requests the return of the goods, the distributor refuses and sells them without authorization.

The distributor’s intent has shifted from lawful custody to unlawful appropriation.

3. Property of Significant Value and Refusal to Return

Chinese law generally requires that the value of the property reach a statutory threshold and that the possessor refuses to return the property after a demand has been made.

Whether criminal liability exists depends on the specific facts and applicable judicial standards.

A Typical Trade-Related Example

A European company stores industrial equipment worth RMB 300,000 with a Chinese business partner pending customs clearance.

Several months later, the European company requests delivery of the equipment.

The Chinese partner falsely claims that the equipment has been lost, while in reality it has already been sold to a third party and the proceeds retained.

In this situation:

  • The equipment was originally received lawfully;
  • The intention to appropriate arose later;
  • The property value is substantial;
  • The possessor refuses to return the property.

Such conduct may constitute embezzlement under Chinese law.

Embezzlement vs. Fraud: What Is the Difference?

The most important distinction is:

When Did the Illegal Intent Arise?

Embezzlement

The property is acquired lawfully at first.

Only later does the possessor decide not to return it.

Example:

A trading company receives goods for storage and later refuses to return them.

Fraud

The unlawful intent exists from the beginning.

The offender obtains property by:

  • Misrepresenting facts;
  • Concealing material information;
  • Creating false impressions;
  • Inducing the victim to transfer money, goods, or assets.

Example:

A company falsely claims that it has manufacturing capabilities, presents forged documents, receives advance payments from overseas buyers, and then disappears without delivering any products.

If it can be shown that the company never intended to perform the contract from the outset, the conduct may constitute fraud.

Practical Advice for International Businesses

When conducting business in China, companies should preserve:

  • Commercial contracts;
  • Purchase orders;
  • Bills of lading;
  • Warehouse receipts;
  • Payment records;
  • Emails and chat records;
  • Inspection reports and delivery documents.

Proper documentation is often critical in determining whether a dispute should be pursued through civil litigation, arbitration, or criminal proceedings.

Attorney’s Note

Although both embezzlement and fraud involve the unlawful appropriation of another party’s property, the fundamental distinction lies in the timing of the offender’s intent:

  • Embezzlement: lawful possession first, unlawful appropriation later.
  • Fraud: unlawful intent exists from the beginning and property is obtained through deception.

Businesses involved in cross-border trade should seek legal advice promptly when entrusted property, goods, or payments become the subject of a dispute.

Qiang Lyu, Attorney-at-Law

Focusing on commercial disputes, international trade matters, debt recovery, and criminal defense in China.

Resolving a Supplier Dispute in Wuxi

Where a commercial dispute has developed, an overseas buyer should avoid relying solely on informal communications. Reviewing the contract, identifying the correct legal entity, preserving documentary evidence and assessing the available dispute-resolution mechanism are usually important before deciding how to proceed.

The appropriate legal strategy will depend on the specific transaction, the supplier’s conduct and the remedies available under Chinese law.

Legal Disclaimer

The information provided in this article is for general informational purposes only and does not constitute legal advice. Laws and legal procedures may vary depending on the specific facts and applicable jurisdiction. No lawyer-client relationship is created by reading this article or contacting us through this website. For advice regarding a specific matter, please consult a qualified lawyer after a formal engagement has been established.

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