China Supplier Legal Due Diligence

The standard due-diligence scope starts from US$1,200 for one Chinese legal entity and the agreed corporate, legal and transaction checks. The records, entities and date range are agreed before work begins. A narrower or materially different matter may be quoted separately. On-site work, technical inspection, paid records and additional entities are included only where stated.

The agreed output sets out findings, sources, unresolved questions and the limits of the checks performed. A transaction-focused review also identifies points to clarify or document before signing or payment. The report does not replace a complete contract revision or certify future supplier performance.

For a transaction involving a mainland factory, a trading company or a Hong Kong payment recipient, begin with a simple party map. Record each exact name, the source of the name and the role claimed. The before-payment guide explains what to prepare without treating a mismatch, by itself, as proof of wrongdoing.

Almost every check of a Chinese supplier starts at the National Enterprise Credit Information Publicity System. It is a genuine public record, and it answers a narrow set of questions well. Does a company with that exact Chinese name exist? What is its unified social credit code, registered address, legal representative, business scope, shareholding and registered capital? Has it been listed as operating abnormally?

Three things follow that overseas buyers frequently get wrong.

Registered capital is not money in the bank. Under article 47 of the Company Law as revised in 2023, the registered capital of a limited liability company is the amount subscribed by the shareholders, and that amount must be paid up within five years of incorporation under the company's articles. A registered capital of RMB 10 million tells you what the shareholders have promised, not what the company holds. Paid-in capital is a separate figure and it is the one worth looking at.

The business scope describes permission, not capability. A scope that includes manufacturing does not establish that the company operates a factory, and a trading company's scope will often read expansively. Where it matters whether you are contracting with the manufacturer or with an intermediary, the scope is a starting point rather than an answer.

An absent record is not a clean record. Litigation and enforcement databases are not complete, coverage varies by region and period, and a search that returns nothing establishes only that nothing was returned. A report that presents silence as a positive finding is overstating what it can support.

The single most common structural problem is that these are different companies. The Alibaba storefront is operated by a trading company; the quotation comes from that company or from a Hong Kong entity; the factory is a separate mainland company, sometimes under common control and sometimes not; and the engineering files are sent to an address at the factory.

That arrangement is not improper in itself. It becomes a problem when the agreement binds one of those companies and the conduct you care about is carried out by another. The response is a party map made before anything is signed: for each company, the exact registered Chinese name, the code, the role it claims, and the source of that information. Where a supplier describes companies as "affiliated", treat that as an assertion to be verified against the shareholder and investment records rather than as a fact.

PRC law provides one default that helps. Under article 772 of the Civil Code, a contractor must complete the main work with its own equipment, technology and labour unless otherwise agreed; where it gives the main work to a third party it remains responsible for that party's work to the customer, and if it did so without consent the customer may also terminate the contract. That gives you a lever against unauthorised outsourcing even in a thin contract. It does not identify the third party for you, which is why the mapping matters.

A contract in written form is concluded when the parties sign it, affix a seal or apply a fingerprint (Civil Code art. 490). In Chinese practice the company seal carries the weight that a signing officer's signature carries elsewhere, and the question worth asking is not whether a chop appeared but whether the chop and the signatory belong to the registered entity that is taking on the obligations.

The practical checks are modest: does the Chinese name on the chop match the business licence exactly; is the person signing identified, and in what capacity; and does the returned document match the version that was sent. Execution is also testable after the fact — in one processing dispute the defendant denied its seal and a forensic examination established that the impression was neither a scan nor a counterfeit, which decided the authenticity question but not, as it turned out, the case.

A check is worth what the decision it informs is worth. Confirming which registered company you are dealing with before sending a technical package is a small piece of work with a large effect. A broader review of corporate structure, litigation record and the transaction documents belongs before a significant prepayment, a tooling investment or an exclusive arrangement. Neither establishes solvency, predicts performance, or substitutes for the contract terms that allocate the risk.

Two registry entries are worth understanding because overseas buyers either miss them or over-read them.

The abnormal operations list records companies that failed to file an annual report, cannot be reached at their registered address, or filed information that does not match reality. A listing is a genuine signal and it is also frequently administrative — a company that moved premises without updating the register ends up on it. It is a question to put to the supplier, not a conclusion.

The list of seriously illegal and dishonest entities is a much stronger signal, and so is an enforcement record showing the company as a judgment debtor subject to enforcement. Where either appears, the question shifts from whether to contract to whether to prepay at all.

What none of these establishes is solvency. A company can be entirely clean on the register and unable to pay. Nothing in a legal check substitutes for payment terms that keep your exposure proportionate to what you have received.

A request to pay a Hong Kong company, an individual's account, or a mainland entity other than the one named in the contract is common and not automatically improper. Suppliers use offshore payment entities for foreign exchange and tax reasons that have nothing to do with you.

It becomes a risk when nobody has recorded the relationship between the payee and the party bearing the obligations. If the goods are not delivered, the claim lies against your contract counterparty; whether you can reach the company that received the money is a separate question with a separate answer. The response is not to refuse the arrangement but to document it: identify the payee, record on what basis it is receiving payment for another company's contract, and have the contract counterparty acknowledge that payment to the payee discharges your obligation. The before-paying guide sets out what to prepare.

A check is more useful when it is paired with answers you can compare it against. The useful questions are narrow: which registered entity will sign; whether that entity owns the factory where production will happen, and if not, what the relationship is; who will hold the technical files; whether any part of the work will be subcontracted, and to whom; and which entity will issue the invoice and receive payment.

Inconsistency between the answers and the register is the finding. A supplier that answers these clearly and matches the record has told you something useful; one that cannot say which company owns the factory has told you something else.