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Due Diligence in China

Investigative research to protect your reputation and integrity

Lack of transparency has been a major factor for international companies deciding to engage more actively in China and at the same time has constrained the role of Chinese companies played oversees. Transparency International’s Corruption Perceptions Index 2012 places China in position 80 out of 176 countries. Moreover, an October 2013 assessment by Transparency International of emerging market multinationals has shown that Chinese companies are at a greater risk than their counterparts in other BRICS countries (Brazil, Russia, India and South Africa ) in terms of involvement in corruption.

Reasons to be vigilant

For foreign companies who wish to or have established relationships with Chinese companies, it is crucial and highly advisable to conduct thorough reputational due diligence on their business partners, including a review of open source materials available online and in the media. This is especially so for the following reasons:

  • To maintain their integrity and reputation and avoid being involuntarily entangled in the circle of bribery and corruption.
  • To reduce the risk of becoming a target of the government's anti-corruption activities.
  • To establish greater trust and confidence in the relationship with current and future local business partners.

Regional expertise

At Maddocks Insight, we have the linguistic capabilities in Mandarin, Cantonese and English, the research competence and the political and economic expertise to assist our clients with conducting investigative due-diligence research in relation to China, including the mainland, Hong Kong and Macau, as well as Taiwan.

Features of investigative DD in China

Some of the points of concern to keep in mind when performing integrity due diligence in China are: Media coverage -due to political sensitivities in China, frequently red flag issues are not covered in detail by the local media. Therefore, our searches are always backed up by thorough internet and media research including the English language. Alternative sources of information - with more than half a billion internet users in China by the middle of 2013, online content in China is not only limited to the media. Online forums and micro blogging platforms such as Weibo are valuable sources of information for our open source research and frequently help uncover reputational issues and other red flags.

With an annual economic growth of more than 7%, China is one of the fastest-growing countries in the world. The sheer size of the Chinese economy and its strong growth have, to a certain extent, played an important role in buffering the adverse impact of the financial crisis in 2008 on the world economy. There has however been a lot of scrutiny globally of the sustainability and stability of such growth. Undoubtedly, greater transparency, both political and economic, would contribute to more sustainable growth, and to the reshaping of the world economy in wake of the 2008 financial crises.

Recent anti-corruption drive in China

China's new leader Mr Xi Jinping has set out to hunt "tigers and flies" - corrupt officials at all levels - in a new era of anti-corruption efforts. Stricter anti-corruption measures have lead to the exposure of high-level corruption scandals in the government, in large state-owned companies and even foreign companies in China. That being said, the law process and economic system in China are far from being transparent. For instance, state-owned enterprises in China are still controlling a large share of national assets, especially in the industrial sectors, masking complex business ownership structure.

Limited access to information implies operational risks for companies wishing to have a presence in China. Conducting integrity due diligence in China has therefore become of paramount importance for any companies engaging with the Chinese market.

Please contact us today to discuss your due diligence research needs in China.



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