Everything you have heard about China - good and bad - is true. China is so huge that both realities exist simultaneously.
Joint ventures with Chinse firms obviously involve much more risk than merely buying finished products, and therefore require much more due diligence. Many American companies have built successful new venture in partnership with Chinese firms. But it sounds like Caterpillar - like HP - got a little lazy with the research in their zeal to make some easy money.
Several somebodys in the Legal Dept. are in deep doo methinks.