China - Due Diligence China - Due Dilligence
While China is one of the most promising global markets, it is also one of the most challenging environments for American companies. Many U.S. companies are able to profitably enter and operate in the Chinese market, but each year a large number of firms face serious difficulties that result in costly and disruptive local business disputes.
Many of these disputes may have been successfully avoided through standard due diligence. The primary causes of commercial disputes between Chinese and American companies include breach of contractual payment obligations, irregularities in accounting practices, financial mismanagement, undisclosed debt, and the struggle for control within joint ventures. These problems can be minimized by investigating the financial standing and reputation of Chinese companies before signing contracts or entering into partnership agreements.
China’s evolving policy environment over the last decade has created challenges in carrying out what would be considered routine due diligence in the United States and many countries. Rather than a consolidated privacy law, there is be a patchwork of 10 separate laws that leave a lot of gray area for China’s officials and judges to determine violations, which often seem to have political motivations. Of particular note, Article 253 of the PRC Criminal Law was adopted in February 2009 and made government agencies and organizations in the fields of finance, telecom, transportation, education, or healthcare criminally liable for providing personal information on Chinese citizens collected during their routine work. Application of this law has been expanding in the years since. Furthermore, the country cut off access to much of the information that was visible in publicly available records from the State Administration of Industry and Commerce beginning in the summer of 2012.
Despite these challenges, both U.S. and Chinese service providers with offices in China conduct due diligence investigations. The fees charged by these companies should typically be considered a worthwhile investment to ensure the local customer or partner is financially sound and reliable. As part of the overall due diligence process, the Department of Commerce is able to assist American companies in evaluating potential business partners through the International Company Profile (ICP) service. As a general rule, USFCS strongly encourages more due diligence in China than American companies would typically need in the United States or most other international markets.
Online Due Diligence Resources
Online corporate retrieval database maintained by the Administration for Industry and Commerce of PRC
Online corporate retrieval database maintained by the Hong Kong Companies Registry
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