Knowing Your Chinese Business Partner: Conducting Due Diligence is Important!
When making any kind of match, finding the right partner is key.
If you represent a Canadian company and think that you have found your right partner from China, our advice can be summed up in two words: Due Diligence. Why? Scams are pervasive in this market, and you want to ensure that you are not dealing with a fraudulent company.
Conducting due diligence enables you to minimise your risk.
Where can you get assistance with due diligence?
- The Canadian Trade Commissioner Service in China can do preliminary research on a local company from public sources. In order to perform our research, we need to know the Chinese name and phone number of a local company. We can then investigate whether or not the company has registered with their local State Administration of Industry and Commerce (SAIC), government agency in charge of all business registrations in the city, how much registered capital the company has, who the chief representative is, how long the company has been registered, what type of phone listing they have [mobile only as opposed to a landline, which would indicate in some way the reliability and longevity of the firm].
- As we are not mandated to conduct a thorough background check on a local company, we can provide you with a listing of firms that perform company background checks from our listing of Credit Checks and Debt Collection Services.
It is ultimately your responsibility to make sure that you are dealing with a legitimate company. When communicating with the local company, you are well within your rights to ask some questions, including asking to:
- see an original or notarized, translated copy of the business licence which normally includes information such as company’s establishment date, its registered capital, name of its legal representative, business scope and etc.;
- have a description of the scale of the company;
- have a description of their business with foreign companies, requesting names and coordinates as references;
- see audited or unaudited financial statements or records for the past few years;
- have a list of major customers and competitors in the market.
Foreign language ability, while not a determinative factor, can indicate the degree of professionalism of the company, so aim to communicate in your native tongue as much as possible.
Any reluctance to be fully forthcoming on these or any other questions may raise some concerns as well. For more information on fraud and scam in China, read our Fraud Awareness in China report.
If you have any questions or comments, please feel free to contact us.