Succeeding at doing business in China typically requires a good partner. The odds of having problems with a Chinese company will be substantially lower if you are dealing with a “legitimate” Chinese company. That means it makes sense for you to ascertain that you are dealing with a legitimate Chinese company.

But how do you go about doing that? How can you distinguish between a Chinese company that is legitimate and one that is not?

The following are the basics for making that determination:

  • The first thing you do is ask the Chinese company to send you a copy of its business license. Do not be afraid to do this. Chinese companies do this all the time. If the Chinese company refuses to send this to you, walk away.
  • You then have someone fluent in Chinese and with knowledge about Chinese business licenses examine the one that you have been sent. Our China attorneys typically look for the following:
    • To determine whether it is real or not. This is done by comparing the information on the business license provided with the corresponding information on the relevant Chinese government website — usually the local State Administration for Industry and Commerce (SAIC). If the business license you have been provided is fake, you walk away.
    • To see when the company was formed. We like to compare what the real business license says against what we were told (by email or whatever) and also what the Chinese company says on its English language and  its Chinese language website. If different years are given in different places, we get suspicious and we ask more questions.
    • To see where the company is located. We like to compare this against both what we were told (by email or whatever) and also against what the Chinese company says its English language and its Chinese language website. If there are different addresses in different places, we get suspicious and we ask more questions.
    • To see what the scope of the Chinese business is, as listed on its registration. If the scope is “consulting” and our client thinks it will be ordering five million dollars of widgets from a factory, we get really suspicious. Looking at the scope is a good (though not always fool-proof) way to determine whether you are dealing with a manufacturer or a broker.
    • To see the amount of registered capital. If the amount is too low, the odds are good that it is not a manufacturer. If the amount is really high, the odds are good that this is a big company. Note that this information is not going to be as commonly listed in the future.

Lastly, you should go visit the Chinese company or send someone you truly trust to do so.

Doing the above is not going to be nearly enough due diligence for big deals, but it is usually a relatively fast, relatively cheap way to get a good sense about the Chinese company with whom you are thinking of doing business. The above will not guarantee you a good long-term relationship, but it oftentimes will be enough to let you know whether or not you even wish to attempt to form any relationship at all.

  • Steve Klotz

    This article is very accurate and to the point, and, as it says, not nearly enough.

    As a company with Chinese customers and an American presence, we’ve run across a lot of situations that illustrate our business differences.

    First: 2 important suggestions:

    1: Understand that our businesses play by different rules. America has certain standards, and so does China. But, those standards are different in many ways. Learn the differences. As a wise philosopher once said, ” These things are different. Neither is better nor worse. They are simply different.” If you’re in China, you gotta play by Chinese standards.

    2 (probably should be #1): Learn the Chinese culture. Spend some time among the Chinese people, ideally with a native (I have an advantage – I’ve been to China 8 times in the past 4 years, and my wife is a native of PR China) Learn what is important to them (hint – it’s FAMILY, not business!). Learn their ways (as an example, in my tour business – they don’t order from the menu, they want slippers in each hotel room (which can’t be given as gifts, because that signifies “death”), and umbrellas as gifts are a no-no (even though I’m in the Northwest, where the climate is rainy!). there are MANY other cultural faux pas to be avoided… learn which ones are applicable to your business!

    You CAN succeed in doing business with China (meaning PR China), but, you must also NOT appear as “dominant.” You must ask permission, you must bow (head, not body) to the leaders and/or partners, and you must persent yourself as COOPERATIVE, not as “Experts.” The PR Chinese value cooperation. Be a cooperative partner, learn and practice their culture, and play by their rules, and all will be well.

    — Steve

  • bystander

    Sure hope Dan writes a new post on this topic given that a couple of investigators just got thrown in the clink for doing due diligence checks for hire.