I just found this blog the other day and highly recommend it to anyone doing business in China. It is written by a Singaporean General Manager of factory in China. He talks about a wide range of HR, fraud, quality, and other issues he has faced. Much of what he says is very similar to what I have either personally seen or have heard about from Chinese acquaintances. It would save foreign companies a whole lot of time and expense to read his entries and take some similar mitigation steps.
A little excerpt from his post on Managing Chinese Workers:
You can never outwit the Chinese on cheating and fraud. I am always amazed how intelligent they are and the extent they would do to cheat on the company. And I have never stop learning. The rule of thumb is never gives the same person the opportunity to control and manage at the same time. The show of your interest to check on details and fraud will dampen their lure to commit cheat.