Ventilators in High Demand Are Spawning Scams Across China
(Bloomberg Businessweek) -- As hospitals and governments around the world furiously search for medical ventilators to help treat Covid-19 patients, some have been drawn to the large number of merchants in China offering to sell the lifesaving machines. One account on Weibo, China’s version of Twitter and the country’s most popular microblogging site, is offering 1,000 of Beijing Aeonmed Co.’s VG70 ventilators for sale. But the listing is far from a find.
First, the seller’s price of about $51,000 apiece is roughly 50% more than the model’s usual price. An investigation of the seller’s history shows that the Weibo account until recently focused on blogging about beauty products and posting makeup photos, rather than marketing medical equipment. Moreover, Li Kai, a director of Beijing Aeonmed, the purported maker of the machines in the Weibo listing, told Bloomberg News the seller can’t possibly have that many of its products in stock. When a reporter contacted the seller for an explanation and comment, the account blocked Bloomberg News from communicating with it.
Welcome to the buyer-beware world of purchasing ventilators during a pandemic. Forged documents, impostors pretending to be company officials, and fraudulent contracts are some of the moves employed by scam artists as hospitals struggle to secure the respiratory aids. The reputations of legitimate vendors are getting hit by profiteers reselling their equipment for as much as five times its normal price or promising machines they don’t have, while the FBI has warned of schemes targeting government and health industry bodies.
Covid-19’s rapid spread has forced hospitals to go from keeping a few ventilators on hand to suddenly needing hundreds of the complex devices essential in helping intensive care patients breathe. In the U.S., the Society of Critical Care Medicine estimated in March that 960,000 patients would need ventilator support because of Covid-19, but the nation had only about 200,000 such machines.
Although China produces just a fifth of the world’s invasive ventilators, would-be buyers of such equipment have been turning to the country because it’s the only major economy so far to come close to resuming normal manufacturing.
“Governments are scrambling to try anything in a desperate situation,” says Charlie Yin, sales director at ventilator maker Beijing Siriusmed Medical Device Co. “They went to whatever sources they could find, and that’s how they got scammed.” Yin says middlemen are hawking ventilators for 400,000 yuan ($56,500) apiece, compared with a normal price of about 80,000 yuan.
While many foreign buyers have remained focused on traditional suppliers, others have turned to China’s giant social media platforms of Weibo and WeChat in search of products. “This is a crazy market, there are just too many middlemen,” Yin says.
Mechanical ventilators include invasive models that insert a tube in a patient’s airway and noninvasive versions that use a mask to deliver air. While China has been ramping up production of the devices, the Ministry of Industry and Information Technology has called for “sober understanding” of production capacity, estimating China can make only about 2,200 invasive ventilators a week if key components are available.
Chinese manufacturers compete in a market dominated by European and U.S. producers such as Philips Healthcare, Hamilton Medical, and Medtronic. But the recent spike in demand has caused companies as varied as appliance designer Dyson, planemaker Airbus, and automaker General Motors to jump into production to address shortages. That’s blurred traditional supply chains—and created an opening for fraud.
Beijing Aeonmed has found scammers using its name without authority, touting forged documents, and employing bogus engraved official stamps in an attempt to hijack contracts. The company said it isn’t involved in any attempts to mark up the list price of its products.
Some scam artists have been so brazen they’ve set up bogus businesses right outside Aeonmed’s Beijing office and posed as employees to prospective clients. “Ventilators are really unlike masks; they can’t be churned out,” Li says. The company has reported several cases to local police.
Since April 1, China has stepped up quality control on virus-related exports, forbidding medical supplies without government certification to be sold abroad. The Ministry of Industry and Information Technology, which coordinates ventilator production, said Chinese makers have been unable to sufficiently expand capacity because of a lack of key components from foreign suppliers that have also been hit by the pandemic. “We are proactively pushing domestic companies to speed up production and expand capacity,” the ministry said in a statement. “We are helping them to solve raw materials and labor issues and continuing to urge them to do a good job of quality control.” The ministry said that from March 1 to April 22, Chinese manufacturers supplied more than 7,700 invasive ventilators and almost 40,000 noninvasive ones to foreign countries.
The State Administration for Market Regulation, which regulates areas such as market pricing and product quality, didn’t immediately reply to Bloomberg’s calls seeking comment.
Even the Chinese government’s name has been misused by impostors when it comes to medical supplies. The foreign trade department of the Ministry of Commerce said some companies have claimed to be officially designated exporters of masks and protective clothing to 15 countries, including Italy. But the department said it’s never issued such a designation and that misuse of its name has damaged the department’s authority.
In another ventilator case, Ambulanc (Shenzhen) Tech. Co. said people pretending to be employees contacted foreign embassies and health bureaus to offer the machines for sale. The company discovered the fraud only when it was approached by the diplomatic missions.
“Those wishing to get already-made ventilators are prone to scams,” says Liu Bo, vice general manager of Ambulanc. “Our production capacity is already booked through June and July. It’s unrealistic to get finished products immediately.”
The FBI warned in April of multiple incidents of U.S. state government agencies transferring funds to fraudulent brokers and sellers before equipment had been delivered. The middlemen included both domestic and foreign entities, it said.
In one case, an individual claimed to represent an entity with which a state purchasing agency had an existing business relationship. By the time the purchasing agency became suspicious of the transactions, much of the funds had been transferred outside the reach of U.S. law enforcement and was unrecoverable, the FBI said on April 13.
The influx of new brokers, especially those of questionable pedigree, is creating confusion in the market, according to Vedeng.com, an established player that operates one of the main platforms in China connecting medical equipment suppliers and buyers. The Nanjing-based company has exported 8,000 ventilators to Spain and the United Arab Emirates.
“Many unprofessional outsiders rushed into this field, and they simply don’t understand the medical device market,” says Wu Chuanpu, director of supply chain at Vedeng. “We’ve seen many unfulfilled orders. It could be the products were initially somewhere, but after rounds of resale, it’s way too complex to figure out.”
©2020 Bloomberg L.P.