China business due diligence refers to the research and analysis of a company or business entity conduct for a transaction or a project like merger and acquisition or security purchase. When looking to do business with a Chinese company, you want to know whether that Chinese company is worthy of your business and your trust? How do you get information on a Chinese company when certain private investigatory work in China is illegal?
What you need to do is conduct what is commonly called business due diligence. This is the sort of due diligence you do to make sure that it makes sense for you — on a business level — to conduct business with a particular Chinese company. There is also the sort of due diligence you need to conduct to make sure that you are not setting yourself up for corruption charges and there is also the due diligence you should conduct if you are buying a Chinese company or investing in one. There are certain commonalities between these three sorts of due diligence, but they also have many differences. We will address those other sorts of due diligence in future posts.
Focus on the business side
The first thing you should do is conduct a Chinese-language internet search of your potential Chinese counterparty. This sort of search is not likely going to be enough to make you feel good about going forward with a $10 million deal, but it frequently can give you enough negative information on your potential Chinese counterparty to convince you not to do any deal at all. It also may be all it makes economic sense for you to do if all you are contemplating is a one time purchase from China of a USD $2500 product.
Do your due diligence the old fashioned way
Ask your potential Chinese counterparty to provide you with its government registration documents and, if relevant to your deal, its accounting and tax records as well.
What if your potential counterparty refuses to give you these documents? Walk away. In our experience, legitimate Chinese companies do not balk at providing such documents. What if your potential Chinese counterparty does turn over these documents? Have someone who understands such documents review them.
And remember, anything and everything can be faked. Just by way of a few examples, the China lawyers at my firm have in our own research detected the following:
1. Company claimed to have a multimillion-dollar account at a nonexistent bank.
2. Company documents showed a subsidiary in the Marshall Islands, spelled “Marshal Island.” It had no such subsidiary.
3. Company claimed to have a branch office in a particular city, yet the relevant documents for that office (including supposed government documents) were from the wrong province.
4. Company claimed to have been shipping out product on a ship that did not exist.
5. Company claimed to have won a lawsuit in the Supreme Court of a certain country (and even produced “the decision”), but there had never been such a case.
Contact Us
If you have further queries, don’t hesitate to contact Tannet anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com or www.tannet-group.net, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com.
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