Rule number one for succeeding at doing business in China is to have a good partner. The odds of having problems with a Chinese company are much lower when you deal with a “legitimate” Chinese company. That means rule number two is making sure that you are dealing with a legitimate Chinese company.
But how do you do that? How do 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 need to 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 at these for the following:
- To determine whether it is real or fake. We do this by comparing the information on the business license provided to us with the corresponding information on the relevant Chinese government website — typically 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 both what we were told (by email or whatever) and also what the Chinese company says on both its English language and its Chinese language website. If there are different years given in different places, we get suspicious and we ask more questions.
- To see where the company is located. We like to compare this too against both what we were told (by email or whatever) and also what the Chinese company says on both its English language and its Chinese language website. If there are different addresses given 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 ten million dollars worth 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.
Lastly, and perhaps most importantly, go visit the Chinese company or send someone you truly trust to do so.
Doing the above is not nearly enough due diligence for big deals, but it is a fast, relatively cheap way to get a much better sense about the Chinese company with whom you are thinking of doing a relatively small amount of business. Just the above is not going to be enough to guarantee a good long-term relationship, but it oftentimes is enough to let you know that you do not even want to attempt a short-term one.
Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at firstname.lastname@example.org.