There are a lot of factors that play in, but here are two factors one should not ignore when it comes to finding a trustworthy Chinese company:
- Whether the company is law-abiding and upholds integrity;
- Whether it is solvent on an objective basis.
Even if a company is willing to abide by the law with integrity, it may still be unable to make payments if it is insolvent. Conversely, even when the company’s credit status does not appear problematic, you still may not be able to collect your accounts receivable if the company has malicious intent to breach the contract. Fortunately, there are some clues to a company’s credit status. Here are some issues that should catch your eyes.
List of situations that raises a red flag
When doing business with a Chinese company, here are some situations that you should be cautious
- Your trading partner carries out false advertising on their website.
- The company has no website or email address.
- The company or its representative is on the "dishonest judgment debtor" list and is subject to a court judgment.
- The trading partner itself, its representative, or another related person is restricted from high-value consumption subject to a court judgment.
- The company's business license/registration has been revoked in corporate records, or the company has many ongoing litigations.
- The company has declared bankruptcy.
More on the “List of Dishonest Judgment Debtors” (失信被执行人名单)
What are the implications for a Chinese company or person on the list?
“Dishonest judgment debtors” are individuals and corporations which are capable of complying with a court order but refuse to do so or who resist enforcement and thus appear on a specific list of the Chinese courts.
Listing someone as a dishonest judgment debtor was not intended to stop a company from continuing its operations entirely; however, the Supreme People’s Court keeps a list of dishonest judgment debtors, and these names are publicly disclosed. Relevant government authorities also receive the list, and they may restrict the listed person/business in situations including government procurement, bidding processes, administrative licensing processes, government funding, financing, lending, market access, and certification of qualification. As a result, companies usually do their best to maintain a good reputation.
Is it possible to find out whether a potential business partner is on the list?
Anyone can access the list of dishonest judgment debtors by logging in to the China Enforcement Information Open Network (http://zxgk.court.gov.cn/ website is in Mandarin Chinese).
How frequently is the list updated?
The list is updated irregularly, however, and a company will be removed from the list once it has fully redressed its dishonesty. Here is an article from Business Insider that covers more on what the blacklist prohibits the debtors from their doing.
Trustiics Recommended Lawyer Lawyer and Partner at T&C Law Firm
This article is provided By Mrs. Hongli Sun, a Business Lawyer and Partner at T&C Law Firm in China with over 13 years of experience in commercial contracts. Sign up for a free account to find her in our lawyer directory and send a legal request directly.
Here is another blog from her on arbitration venue selection for business disputes.
A quick due diligence service from Trustiics can help you in
- Confirm the potential business partner is in good standing;
- Check if the partner is legally qualified to do certain business, avoiding future risks;
- The partner has the capital required on doing the business.