(1) He signed a contract with a manufacturer. During the signing of the contract, the company intentially sealed the contract with a red stamp that looked official, but was not that companies legal red stamp. They did this so that if anything happened they would have an out if there were a dispute. A dispute eventually arose and my friend found out the hard way to always have those stamps double-checked to make sure they are legit and represent the business with whom they were doing business. Had my friend been literate in Chinese, he probably would have caught this, but the Chinese manufacturer intentionally exploited his illiteracy in Chinese to produce a contract that could not be enforced.

(2) On more than one occasion he would be called by a manufacturer to be informed that the clothes had been produced and were ready to be shipped and that all he had to do was deposit the rest of the money and they would ship the clothes. After once discovering that the manufacturer had not even begun production, but was lying to him to cover a cash flow problem he made it a point of always flying out to the manufacture's plant the very next morning to personally inspect the entire shipment before depositing money in the account. After he started doing this, he repeatedly came across many manufacturers that were caught completely unprepared by his unannounced trip and when he arrived he discovered that no work had been done. This tactic to solve cash flow issues is apparently a semi-common occurrence.

Ask any foreign national that has ever worked (not just lived as a student) and you'll come across many many stories like the two above. I have my own stories from the times I taught public speaking to Phds in China.

TBH, I personally don't attribute it to race or nationality. It's just that many businesses in China have yet to move beyond a "caveat emptor" approach to business to a trust based system. A "pareto optimality" mindset prevails there. So many businesses transactions are negotiated on the Chinese side as "A dollar they get in this is a dollar lost for me" while the foreigners (depending on the country they are from, of course) are negotiating with the intention of long term continued business and that the long-term relationship will be far more profitable for both sides than trying to maximize short term returns. If there is any miscommunication, it's not because of language, but because the Chinese business is looking at it as a short term deal and the foreign side is looking at it as a long term relationship.

Just to be fair, most markets at one point in their development have been "caveat emptor markets". Europe and the US included. At some point a market eventually gets past that mindset once trust becomes a competitive advantage. In China, trust isn't yet seen as a competitive advantage because there are still many naive foreigners coming to China to manufacture things without knowing any better. Once the supply of naive business men going to China to manufacture stuff dries up, I reckon you'll see more competition based on trust.