I've been working with companies, both American and Chinese, doing business in China for for 18 years. I know of a number of specific instances that were the subject of litigation in which I was involved. The typical scenario involves a company ordering x thousand units, the factory runs x+y thousand units, and y thousand units go out the back door under the supervision of the factory manager.

This is not to say that the scenario is common, or that the problem is increasing. Quite the opposite. However, anyone doing business in China needs to understand the country really well to minimize the risks.