How to prevent bad debt and business scams in China?

The most primary element in preventing bad debts (business scams) is to well know your business partners. You can think about as many questions as you can before you make any decision.
How about their credit reputation?
How about their financial situation?
Do they pay on time? Are they able to pay on time?
Do they have a good bank credit?
Do they continually have real product disputes?
Is there any allegation of their committed fraud available?
Are they untrustworthy traders who carry out some legitimate transactions and then routinely fail to pay until they are sued in courts? Or like some debtors who try to utilize suppliers' goods in order to fund their own business, and only when such suppliers file lawsuits will they then settle a claim and only for a less amount?

Considering the risks to spend considerable money and time to recover international debt in future, you should try your best to check the background of your business partners in advance:
Information on initial company registration.
Form of legal entity's incorporation.
All changes  filed / made in AIC (Administration of Industry & Commerce, company registry in China).
Last registered changes in AIC.
Pending changes that have been filed to AIC.
Legal address (de jure address).
Physical address (de facto address).
Contact phone numbers of the office.
Premises occupied by the company, premises occupied by the branches and warehouses.
*Existing bank accounts, bank details, bank balance as of the day of inquiry (if possible).
Tax bureau to which the company files financial and tax reports.
Previous and pending tax inspections by tax authorities.
Licenses for specific types of activity that has been obtained by the company.
Information on current CEO.
Key persons from management side.
Number of employees.
Charter capital.
Property owned by the company.
Information on every participant/shareholder.
*Main financial results of business according to officially filed balance sheet for the last accounting period.
*Full term-sheet for the last accounting period.
 Main contractors (contracting parties) of the company.
 Business image in this field of business.
 List of court cases both pending and judged.

Obviously  it is far from an easy job for foreigners to check the credit status of Chinese companies, particularly for some transactions with considerable amount, you had better retain a professional auditor to thoroughly investigate.  Actually if your order is small, you can simply ask for a Company Basic Verification and if your order is very big, a Factory Inspection and Auditing Service is very necessary in China. STIN services (www.chinabizservices.com) are recommened as they have worked for more than 2000 clients from over 80 countries and areas on the globe so far.