China Due Diligence
China Due Diligence: Sherlock required

Every few months, one of our China lawyers will get an email from a company seeking to buy our due diligence checklist (as though we have just one) for their (usually not described) deal in China. My pat response is usually something like the following:

We don’t have just one due diligence checklist for China because the due diligence we recommend always varies depending on all sorts of factors, including the nature of the deal, the value of the deal, the industry of the parties, and even what we know about the parties before we conduct any due diligence. The location of the parties also can be important.

Though we do use our previous due diligence checklists in formulating due diligence checklists for current deals, we never just re-use an old one for a new deal. For this reason, we are not willing to sell any of our due diligence checklists because the risk of their not working well for you are just too high and we do not want our law firm name in any way attached to what could very well turn out to be inadequate due diligence. Not to mention that I find it nearly impossible to believe that anyone without a huge amount of China legal and business experience could appropriately use a due diligence checklist even if it does perfectly fit the deal.

If you want to see what I mean about how important it is to tailor your due diligence to the China situation at hand, I urge you to read a just completed three part series on China partner due diligence best practices over at the Health Intel Asia Blog. Go here for Part 1, here for Part 2 and here for Part 3. Ben Shobert — a true expert on China senior care — wrote this three part series to set out due diligence “best practices” when dealing “with real estate developers, property management companies, or institutional investors” in the senior care industry.

Ben begins by listing out the following as the most important factors you should consider and then he provides a massive (yet no doubt too general to apply perfectly to your specific situation):

  • Financial ability of the partner to execute.
  • Reputation of the partner.
  • Relationships in the locality where development will take place.
  • Experience in real estate development or investing.
  • Track record in development – residential, mixed use, etc.
  • Track record in developing senior housing.
  • Commitment to senior housing vs. senior housing as a way to acquire land use rights.
  • Dedicated development team.
  • Dedicated senior housing team – familiarity with development and operational issues.
  • Long term investment horizon – commitment to operating senior housing vs. build and sell.
  • Common strategic vision for their involvement in the industry.
  • Experience dealing with foreign partners.

The above is about 15% of the information Ben advocates securing from your China senior care partner> I list it not merely to give you some flavor of how complicated it is to tailor your China due diligence to your specific deal. If you read the remaining half of Ben’s initial post and his two subsequent posts I am sure you will be convinced as to why no off the shelf checklist can be adequate.

For more on what is involved in China due diligence, check out the following.

 

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.