Managing reputational risks associated with business partners in China

08 December, 2022

Maintaining existing and establishing new business relationships in China can be challenging in view of ongoing Covid outbreaks – including lockdowns and travel restrictions.

The latest geopolitical developments also continue to pressure value chains across Asia and Europe. Understanding the reputational risks that a business partnership can pose is therefore crucial for planned or existing business relationships.

Gaining clarity

Conducting background research on a business partner in the local Chinese public domain – complemented by searches in international subscription databases, such as compliance databases and press archives – helps independently validate the information provided by the partner. It can therefore shed light on potential inconsistencies or red flags in the corporate track record.

In general, such due diligence would include two areas: understanding corporate structures and the company’s history of business activities, and gathering media coverage on reputational risks, such as political affiliations, blacklisting, involvement in corruption, fraud, tax evasion, etc.

How to screen

The following points should be considered when conducting reputational due diligence on business partners in China.

  • Obtain comprehensive documentation on the partner company’s status, registration, structure and business activities, for example through self-assessment or a questionnaire sent to the business partner to complete.
  • Conduct research in China’s company registry and local company databases to cross-check and corroborate the information received from the business partner. Chinese companies are registered with the State Administration of Industry and Commerce (SAIC) or local SAICs. The following information is usually available on Chinese firms: company status, shareholder and management structure, registered capital, business license expiry date, address and business activities. In China, business representatives might use public domain email addresses along with corporate ones. Additional research might be required to validate such email addresses.
  • Media research should also be done to cross-check details of the company’s business activities, history and planned projects, as well as the career milestones of its executives.
  • Screen the company, shareholders and management by consulting local Chinese media and international press archives for adverse news coverage, such as involvement in fraud, corruption or tax evasion.
  • Conduct checks on the company, shareholders and management to see if they are subject to sanctions or blacklists. Carry out litigation searches as well.
  • To understand the partner’s political exposure, research compliance databases, state-owned entity lists and registries of politically exposed persons.

If red flags appear

  • In some cases – for key business partners, for example, or if desktop research yields red flags or inconsistencies – it can be helpful to complement inhouse research by a visit to the business partner’s premises. Depending on the partner’s set-up, the due diligence could include interviews and a review of the company’s documentation, in addition to the onsite visit.
  • If any red flags appear during the due diligence, develop and implement the relevant mitigation measures. Updating background checks regularly can make it easier to respond to emerging red flags in a timely manner.

Operating around the world, the PwC Global Intelligence team can assist you in identifying potential risks. We leverage our extensive experience and resources, including a dedicated team in China, to conduct background research that protects your company and safeguards its integrity. We maintain and regularly update a range of publicly accessible and subscription databases containing information derived from local corporate filings, media outlets and litigation records, among other sources.

Marina Dorn is director at PwC (Advisory) in Frankfurt

Marina Dorn

Marina Dorn is director at PwC (Advisory) in Frankfurt. She has over 12 years of cross-industry experience in various reputational due diligence projects, ranging from business partner due diligence to country risk assessments and sanctions monitoring. Prior to joining PwC, Marina built and led a team focusing on background research, including in-depth investigative research at another Big4 consulting firm. Prior to that she worked as a journalist. Marina holds an MBA from the European School of Management and Technology ESMT in Berlin.

Tel: +49 151 55997203

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Thomas Heck

Thomas Heck

Partner, PwC USA Business Group Leader & China Business Group, PwC United States

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