Summary: Before signing any significant contract with a Chinese company — or acquiring one — foreign companies should verify: corporate registration and ownership chain, litigation and enforcement records, contracts and major obligations, intellectual property, employment matters, licenses and regulatory compliance, and financial/related-party issues. This checklist helps you avoid the most common and costly surprises.

Chinese companies vary enormously in corporate governance quality. A standard due diligence checklist designed for Western markets misses several China-specific risk areas. Here is what to verify — with your lawyer, accountant and local agents.

1. Corporate Registration & Ownership

  • Business license (营业执照) — verify against the National Enterprise Credit Information Publicity System (国家企业信用信息公示系统)
  • Unified Social Credit Code matches the license presented to you
  • Ownership chain — who actually owns the company? Check registered shareholders vs. beneficial owners (nominee shareholding is common and risky)
  • Registered capital — declared vs. actually contributed (new Company Law requires contribution within 5 years)
  • Legal representative — who holds the position; verify against records (it may not be the person you are negotiating with)
  • Subsidiaries and branches — full group structure

2. Litigation, Enforcement & Credit Risk

  • Court records — search China Judgments Online (裁判文书网) and local court records
  • Enforcement records — National Enforcement Information Publicity Platform (失信被执行人查询) for unpaid judgments and “dishonest debtor” (老赖) status
  • Restricted persons (限制高消费) records
  • Arbitration history — CIETAC/BAC awards involving the company
  • Tax arrears and penalties — tax bureau records
  • Administrative penalties — market regulation, customs, environmental, labor bureau

3. Contracts & Major Obligations

  • Top 10 customer and supplier contracts — check termination rights, exclusivity, change-of-control clauses
  • Loan and guarantee obligations — bank loans, guarantees given or received, pledges (mortgages) on assets
  • Land and property — land use rights certificates, building ownership, leases; verify registration, not just documents
  • Key contracts requiring consent — do any contracts contain change-of-control or consent provisions triggered by your transaction?

4. Intellectual Property

  • Trademarks — registered in China? (China is first-to-file: the company may not own the mark it uses)
  • Patents and utility models — validity, maintenance fees paid
  • Domain names and social accounts — registered in whose name?
  • IP assignment — do employee IP clauses actually assign inventions to the company?
  • Licenses — does the company license IP from third parties, and can that continue after a change of control?

5. Employment & Labor

  • Labor contracts — signed with all employees? (unsigneds = double wage risk)
  • Social insurance — actual enrollment vs. declared; underpayment is common and can be back-charged
  • Senior executives — contracts, non-competes, severance exposure on change of control
  • Union and collective agreements
  • Payroll compliance — overtime, minimum wage

6. Licenses & Regulatory Compliance

  • Business scope — does the actual business match the registered scope? (operating beyond scope has compliance consequences)
  • Industry licenses — any required qualifications (e.g., ICP license for online business, food, medical, financial licenses)
  • Environmental compliance — for manufacturing: EIA approvals, discharge permits
  • Data compliance — PIPL obligations if processing personal data; cross-border data transfers
  • Foreign exchange — compliance with SAFE rules on capital flows

7. Financial & Related-Party Issues

  • Audited financials — last 2–3 years, verified by a Chinese CPA
  • Related-party transactions — loans, guarantees, sales to affiliates (often hidden value leakage)
  • Accounts receivable — aging analysis; many Chinese SMEs have large but uncollectible receivables
  • Tax compliance — VAT, corporate income tax filings; transfer pricing documentation if related-party cross-border flows exist
  • Off-book liabilities — ask specifically; Chinese SMEs often have informal borrowings

8. Red Flags That Require Extra Scrutiny

  • Listed on enforcement/dishonest debtor lists — walk away or restructure the deal
  • Nominee shareholders — ownership disputes are common when the true owner’s identity was never registered
  • Cash transactions and two sets of books (common in smaller companies)
  • Missing licenses for regulated activities
  • Key person dependency — the business lives in the founder’s personal relationships, not the company’s contracts

How We Help Foreign Buyers and Partners

We conduct bilingual due diligence for international clients, combining: (1) public record searches (courts, enforcement, credit, regulator), (2) document review and verification against original records, (3) on-site verification where needed, and (4) a plain-English risk report with deal recommendations. We also advise on how to structure the transaction to allocate and mitigate the risks found.

Planning to invest in or acquire a Chinese company? Jiao Liang is an English-speaking partner at Beijing Zhongyin Law Firm. Contact [email protected] for a free initial consultation.