There is nothing wrong with your brakes. There is very little that can go wrong with these setups. They just ship with horrible fluid in them and air. Air can be compressed, unlike oil, and so the brakes won't work. This is an easy fix and a good one to attempt cause you can't really stuff any thing. (they already don't work right!) Go buy some good dot 4 brake fluid and get a coloured one to make this easier.
The first thing, is to release the banjo nut on the caliper
and make sure you dont lose the two washers that seal either side of the nut. Now just let the hose hang down into a container.
Then take the cap off the little fill bottle at the top. We are now going to allow gravity to drain all previous crap out and good dot 4 to replace it.
It may take a while but the old crap will slowly drain. As it does keep the filler topped up with your new oil and let it help push the old through the system. IMPORTANT Once the new oil is flowing freely don't let the filler ever empty because air will enter the lines if you do. It may pay to have a mate keep topping it at this stage. Now while its flowing, bolt the banjo back on the caliper and nip up. Your 95% there with no air!
Now to finish a beautiful job all you have to do is loosen a couple of turns the little bleeder nut
and once again keep topping up the filler and wait for the fresh dot 4 to appear and flow consistantly out. Once its flowing well, just nip back up and your done! Now all fittings should be tight again with only the filler cap to replace. Adjust the brake peddle to your liking and then wash all fluid off your bike.
The front is the same except the filler is the little rectangle box on the brake lever housing (but you already knew that). If you don't want a mess with the front, chock both sides of the wheel so the filler is level and secure.
Now during this whole process resist the urge to pump the peddle to speed things up, as you can suck air in on the return stroke of the peddle. Just use patience and you'll do a good job.