China Risk & Due Diligence Special Issue

September 2004 China Briefing

Our theme this month is Due Diligence & Risk Management, an increasingly important sector of China business from both the pre-investment risk assessment issues, but also the ongoing battle to stay in compliance. We explore your options if you suspect fraud or non-compliance has occurred in your own business. As in common with many other developing nations China is endemic with non-compliance issues and you can unfortunately take it as read that at some stage your business here will be affected. We deal with mitigating actions you can take to minimize your China risk. The main article is “Due Diligence & Compliance Issues in China” and is by Chris Devonshire-Ellis, Senior Partner, Dezan Shira & Associates. It deals with pre-incorporation due diligence, conducting financial due diligence on your Chinese partners, and China corporate secretarial compliance; in addition to tax matters. A second article, kindly provided by John Auerbach, Managing Director of Kroll Inc, in Shanghai, is entitled “Responding To Operational Risk in China” and details analyzing and responding to operational risk issues, including useful flow charts of breaches, people, systems and external events that affect these, in addition to the mitigating actions that can be put in place to minimize the impact or reduce the likelihood of being caught out of compliance. It also deals with the COSO ERM framework and how foreign entities in China can utilize this discipline to their best advantage.