[Shakakai]

I'm living in Shanghai right now so I've seen this move in a number of variations.

I can tell you legal recourse is a bit of a tricky thing. You really don't want to rely on contracts in a foreigner vs chinese situation. The supplier's guanxi (business relationships) will almost always trump your connections. The only way to resolve things are:

A) Place a larger order under safer terms for you - I know that sounds crazy but you can sometimes get suppliers to "do the right thing" by rewarding them for their bad behavior. Offer to purchase an extra large order where the money they already have is the down payment. Requires a certain morale flexibility to hand more money over to a thief (but it can get the job done)!

B) Buy some guanxi. Get yourself a high end law firm (or consultant) based in Shenzhen and pay for their persuasive abilities with the local government and supplier in question.

Hope this helps. Good luck!

[Shakakai]

I almost forgot. You can always send thugs to rough up their office and employees. Classic move. That actually happened to me during my first year in business here :P