Meta Description:Before entering into deals with Chinese companies, foreign investors should conduct proper due diligence. This FAQ outlines key checks and common red flags.
1. Why is due diligence on Chinese partners so important?
Information asymmetry is common in cross‑border deals. Without proper China‑specific due diligence, foreign companies may:
- Partner with entities that misrepresent their ownership, licenses, or capabilities
- Overlook hidden liabilities, disputes, or regulatory problems
- Become exposed to fraud, bribery, or sanctions risks
Basic background checks are not enough; you need a structured approach tailored to China.
2. What basic checks should we always conduct?
At minimum, you should:
- Verify registration details: legal name in Chinese, unified social credit code, business scope, registered capital, legal representative
- Confirm shareholding and ultimate beneficial owners
- Review licenses relevant to the industry (e.g., manufacturing, import/export, financial services)
- Check whether the company is active, in liquidation, or subject to special supervision
These checks can reveal inconsistencies between what you are told and official records.
3. How can we check litigation and enforcement records in China?
Chinese court and enforcement databases provide information on:
- Civil and commercial lawsuits involving the company and key individuals
- Judgments and enforcement actions
- Records of dishonest debtors (“laolai” lists) and consumption restrictions
Reviewing this history can show whether your potential partner is frequently involved in payment disputes, labor claims, or compliance issues.
4. Should we look into the personal background of key individuals?
Yes. In many Chinese businesses, decision‑making power is highly concentrated. You should consider appropriate checks on:
- Controlling shareholders and directors
- Senior management directly involved in the deal
- Their past business ventures, litigation history, and reputation
This helps identify conflicts of interest, undisclosed related parties, or previous failed ventures.
5. How do we assess integrity and reputation in practice?
Besides database research, you can:
- Conduct discreet market enquiries with suppliers, customers, and industry contacts
- Review Chinese‑language media and social media coverage
- Examine prior dealings with foreign partners, including payment behavior
A good due diligence report will separate hard facts from market perception while clearly flagging integrity concerns.
6. What are common red flags in China due diligence?
Typical red flags include:
- Frequent changes in shareholders, directors, or business scope
- Significant litigation or enforcement records, especially for unpaid debts or quality issues
- Heavy reliance on a few government customers without transparent tender processes
- Complex webs of related parties with unclear roles
- Inconsistent explanations when confronted with adverse findings
Red flags do not always mean “deal‑breaker,” but they require additional protections or revised structures.
7. How can Chinese local counsel and investigators help?
They can:
- Access and interpret Chinese‑language official records
- Conduct on‑the‑ground checks on facilities and operations
- Provide bilingual reports with clear risk ratings and recommendations
- Suggest contractual protections (warranties, covenants, guarantees) based on findings
Our corporate intelligence team regularly assists foreign companies and law firms in vetting Chinese partners before major decisions.