The Future of Due Diligence and Investigations in China

In light of recent events in Beijing, China, whereby several foreign corporate due diligence firms were raided by Chinese authorities and their assets confiscated by Beijing’s Bureau of Statistics, the future of background checks and due diligence in China has been subject to uncertainty. 

Due diligence is essential, and often mandatory for companies who wish to conduct business in China. However, in China, there is currently a nationwide suppression of international consultancy and due diligence firms. An anti-espionage law was updated in April 2023, which has subsequently broadened the definition of spying and gives more power to punish anything that is deemed to be a threat to China’s national security and interests, whilst being vague about the definitions of national security and interests. This law also banned the transfer of information related to national security.  

This was not always the case, however. Years ago, it was possible to access personal details when conducting an asset search or searching through a Chinese family tree. Confidential company information, such as owner names and percentages, was also readily available. 

So, what do these restrictions mean for the future of due diligence and investigations, both inside and outside of China?  

Due to this new law, setting up an investigation company in mainland China is extremely difficult, especially if the company is foreign. There are also many restrictions and requirements for due diligence companies outside of China. Most typical due diligence searches require various information and documentation – primarily an ID number, a signed consent form, or even a copy of an identification document. For some searches – such as liens and litigations – it is necessary to utilise a local agent or supplier to assist in completing these searches. In the wake of these restrictions, it is essential that due diligence companies both inside and outside of China ensure their compliance with Chinese law as much as possible.  

TenIntelligence Thoughts 

Whilst conducting due diligence in China is still currently possible for foreign companies, it is becoming more difficult. This new level of difficulty could result in more companies choosing to opt out of conducting due diligence in China. This, in turn, could lead to an increased level of risk for companies doing business with Chinese firms. Despite these difficulties, it is necessary to work within the restrictions and ensure that due diligence is conducted legally and ethically, especially with the elevated levels of risk currently associated with China.  

Utilising OSINT methods and liaising with our network of domestic due diligence contacts in China, we can still provide clients with a level of assurance when examining the background of an individual, company or other investment. Contact our team for further information about how we can help.