Running Background Checks On Chinese Companies
Aug. 19 – Our affiliated consulting practice, Dezan Shira & Associates is regularly asked to provide basic information on businesses in China, often just to establish that the pertinent company exists and is a genuine business. Unfortunately, over the years many scams have occurred where Chinese companies have obtained goods from businesses overseas and not made payment, or valuable orders have been placed with part payment in advance, only for nothing to be received when the order is due to be shipped. Much of the problem lies in that there is a lack of a sufficient and reliable centralized public records office in China, coupled with the language barriers making it somewhat difficult to obtain readily available information. While about half of Dezan Shira & Associates’ client base comes from North America, the firm also receives a lot of these types of general enquiries concerning the validation of Chinese businesses from Indian businesses, which are increasingly engaging with and conducting trade with China.
Obtaining reliable information therefore on Chinese businesses is not that easy. Nor, as has been suggested on a China blog elsewhere, is Google an answer, as the search engine is unstable and subject to intermittent blackouts in China, resulting in a reduced capability for searching in Chinese. Baidu is in fact the preferred search engine in China, not Google, and in any event search engines are unlikely to provide the specific types of information a businessman is going to want to know about a company in the PRC. Using search engines to conduct research may be free, but it is neither reliable nor professional enough of a resource to get to the real story or provide verifiable information to a client business requiring hard facts.
We have run articles on conducting due diligence in China many times before, including a detailed look at examining a Chinese business license here, and a comprehensive report on China due diligence here.
However, we get asked so many times for information on China-based companies that Dezan Shira & Associates have been able to develop a specific service to address the issue. Such services require sound relations with various authorities in China, which the practice has built up after nearly 20 years practicing in the country. A standard level enquiry concerning Chinese companies will include the following:
- Collecting all information regarding the registration of the company;
- Collecting accessible information about the history of the company (including the original IPO date, owners and development, if the target is listed);
- Review and collecting information about shareholders;
- Review and analyze the structure of the management and main leaders (legal representative, general manager);
- Analysis of the company structure;
- Provide information about the company’s banking relationships;
- Provide information about the company’s business relations;
- Provide information about the company’s affiliates (if any);
- Provide information about the company’s investments;
- Provide financial statement and analysis of the financial status of the company for the last three years.
That is normally enough for most enquiries, and interestingly, the service is not that expensive. Dezan Shira & Associates Senior Legal Associate in Beijing, Richard Hoffmann usually handles such enquiries and may be contacted at firstname.lastname@example.org.
However, for more detailed analysis, additional data can be provided as follows:
- Analysis of the business scope and activity within it;
- Analysis of the operational development since the company’s incorporation;
- Provide financial statements and analysis of the financial status for the last eight years
While other materials may also be provided upon request, such as copies of the:
- Business license
- Certificate of approval (only for FIE)
- Capital verification report confirming payment of the company’s registered capital
- Articles of association
- Board resolutions made that change the company’s information
- Any modification to the company’s registered information (registered capital increasing or decreasing, shareholding transfer, M&A, and so on)
- Annual inspection result of the company
- Directors’ registered personal information
As stated, such information remains confidential and requires an established presence in China to obtain. However, armed with services such as these, and the complimentary advice provided in the links above, sourcing data on the validity of China-based buyers, or sellers requiring credit terms, should no longer be an issue. The information, and the expertise in obtaining it, is available for firms with a strong China presence.