Key Takeaways
Due diligence before any order over $5,000 is not optional — it is the difference between catching a shell company and losing your deposit. A basic business license lookup takes 10 minutes but only catches obvious fakes. True due diligence — financial health analysis, UBO tracing, and on-site verification — reveals the patterns that predict default: undercapitalized entities, legal representatives controlling multiple dissolved companies, and business scopes that do not match the products being sold.
Why Basic Verification Is Not Enough
Every week, international buyers wire deposits to Chinese suppliers who pass the basic checks — a valid business license, a professional website, responsive WeChat communication — and then discover too late that the supplier was a well-disguised shell or a company on the verge of insolvency.
A uniform social credit code (USCC) lookup on Qichacha confirms a company exists. It does not tell you whether that company owns assets, whether its legal representative has dissolved five previous companies after collecting deposits, or whether the entity is structured through offshore holding layers designed to shield the real owner from liability.
This checklist goes deeper. It covers the nine verification points that I, as a PRC-licensed lawyer, run on every supplier before a client wires significant funds.
📋 Basic Check (Under $500)
- Qichacha business license lookup
- Confirm USCC matches company name
- Check registration status (normal/abnormal)
- Verify corporate bank account name
- 30 minutes from your desk
🔎 Deep Due Diligence (What This Guide Covers)
- UBO tracing through holding structures
- Financial health from tax and social insurance filings
- On-site factory verification with geo-tagged evidence
- Litigation history and dishonesty blacklist status
- Supply chain mapping and supplier dependencies
The 9-Point Due Diligence Checklist
Work through these nine checks in order. The first four can be done remotely. Checks 5 through 7 involve in-country verification. Checks 8 and 9 require professional legal analysis.
Check 1: Business License Deep Analysis
A basic license check confirms the company is registered. A deep analysis asks different questions.
Verify registration date and operating period
Companies registered within the last 12 months with no track record are significantly higher risk. Check the operating period on the license — a company with a 3-year or 5-year operating term may be structured for short-term operation and dissolution.
Analyze registered capital vs paid-up capital
Chinese companies list both subscribed (registered) capital and paid-up capital. A company with ¥10 million registered capital but only ¥10,000 paid-in capital has no real asset backing. On Qichacha, check: 注册资本 (registered) vs 实缴资本 (paid-up). The ratio tells you how much skin the owners actually have in the game.
Compare business scope against what they are selling
Every Chinese business license lists an approved business scope (经营范围). If the supplier sells electronics but their scope only authorizes "consulting services" or "trading of general merchandise" with no 生产 (manufacturing) or 制造 (production), they are not a factory. Read our detailed guide on how to read a Chinese business license.
Check 2: Ultimate Beneficial Owner (UBO) Tracing
The person listed as legal representative (法定代表人) on a Chinese business license is often not the real owner. True control frequently sits behind layers of holding companies — a structure perfectly legal but designed to obscure accountability.
- Check the shareholder register: On Qichacha, look at the shareholder (股东) tab. A single individual holding 80%+ is straightforward. Multiple corporate shareholders — especially Hong Kong, BVI, or Cayman entities — requires further investigation.
- Cross-reference the legal representative: Search the legal rep's name across Qichacha to see every company they control. If they are connected to 5+ companies and 3+ have been dissolved or face enforcement actions, that is a pattern of serial entity creation.
- Request the Articles of Association (公司章程): This document, available from the local Administration for Market Regulation (SAMR) office, reveals the actual ownership structure. A supplier unwilling to provide this for a large transaction is concealing something.
UBO Red Flags
- Legal representative controls 5+ companies, 3+ dissolved
- Shareholders are all corporate entities with no natural person visible
- Offshore holding in BVI, Cayman, or Seychelles (typically opaque jurisdictions)
- Legal representative changed within the last 90 days (sign of ownership transfer to a nominee)
- Ultimate owner is also listed on China's dishonesty blacklist (失信被执行人)
This is where our due diligence service provides the most value — we trace UBOs through Hong Kong Companies Registry, BVI Financial Investigation Agency records, and Chinese corporate registries simultaneously.
Check 3: Court Records and Enforcement Actions
China's court system maintains public records of all civil judgments, enforcement proceedings, and dishonesty blacklist designations. These are accessible through China Judgments Online (中国裁判文书网) and the national enforcement database.
| Record Type | What It Means | Risk Level |
|---|---|---|
| Active litigation as defendant | Another party is currently suing the supplier | High — especially if the plaintiff is another foreign buyer |
| Enforcement debtor (被执行人) | A court has ordered the company to pay and it has not complied | Critical — the supplier is in active default |
| Dishonesty blacklist (失信被执行人) | The company has been publicly designated as dishonest by a Chinese court | Walk away — this supplier has a proven record of non-compliance |
| Asset freezing orders (财产保全) | A court has frozen the company's bank accounts or assets | Critical — the supplier may be unable to access working capital |
| Tax enforcement (税务处罚) | The tax bureau has assessed penalties for non-compliance | Moderate — suggests poor internal controls |
Check 4: Financial Health Indicators
Private Chinese companies do not publish audited financial statements, but several proxies reveal financial distress.
- Social insurance contributions (社保): Chinese companies must report employee counts and social insurance payments. A sudden drop in insured employees (visible on Qichacha) signals downsizing or cash flow problems.
- Tax payment status: Check whether the company is listed as a "tax-paying A-level credit" entity (纳税信用A级) — this is a positive signal. Conversely, tax arrears or enforcement actions by the State Taxation Administration are severe red flags.
- Annual report filing: Chinese companies must file annual reports with SAMR. Companies that have missed filings or filed late are often in administrative or financial trouble.
- Export/import records: Through China Customs databases, you can verify whether the company has an active export license and recent export history. A supplier with no export record claiming "10 years of export experience" is lying.
Check 5: On-Site Factory Verification
A website can show any photo. An office in a Shenzhen high-rise can look impressive. Neither proves there is a factory producing goods.
Verify the address on Baidu Maps satellite view
Enter the Chinese-character factory address. Does the satellite image show an industrial building with truck access and loading bays — or a residential complex or commercial office tower?
Coordinate a third-party on-site inspection
For orders above $20,000, hire a third-party inspection company (SGS, TUV, Intertek, or our partner network) to visit the factory, photograph the production floor and equipment, and verify production capacity. We provide on-site verification coordinated through local partners in Guangdong, Zhejiang, and Jiangsu.
Request a live WeChat video walkthrough
A real factory can show you production lines in real time. Ask them to show you: the production floor with workers operating machinery, raw material inventory, finished goods warehouse, and the quality control (QC) station. A supplier who cannot do this within 24 hours is not a factory.
Check 6: Supply Chain Mapping
Even a real factory can fail to deliver if it depends on a single raw material supplier who goes bankrupt or if its production is 100% outsourced to subcontractors you have never vetted.
- Ask for the supplier's top 3 raw material sources. A factory that refuses to disclose where it gets components or raw materials may be entirely dependent on an unreliable upstream supplier.
- Verify whether the supplier subcontracts production. Many "factories" are trading companies that subcontract 100% of production to third-party workshops with no quality control and no legal accountability.
- Check for single-supplier dependency risks. If the factory's key component comes from one supplier and that supplier has enforcement actions or financial distress signals, your order is at risk.
Check 7: Bank Account and Payment Channel Verification
Payment method is one of the most reliable indicators of legitimacy — or fraud.
| Payment Channel | Risk Level | Why |
|---|---|---|
| Corporate account in company's registered name | Low | Legitimate. Bank requires business license and company chop to open |
| Personal account (even if "more convenient") | High | Funds are harder to recover in litigation; personal accounts are easily emptied |
| Western Union, MoneyGram, cryptocurrency | Critical | Untraceable. Near-impossible to recover through Chinese courts |
| Hong Kong bank account (company not registered in HK) | Moderate | May be legitimate for tax purposes, but requires additional HK company registry verification |
| Alibaba Trade Assurance / escrow | Low | Good for small orders; fund release is conditional on delivery confirmation |
Check 8: Intellectual Property and Trademark Status
If you are having a product manufactured to your design or under your brand, you need to know whether the supplier has registered your IP — and whether they have conflicting registrations.
- Check the China Trademark Office (CTMO) database: Search for the supplier's name and your intended brand name. Has the supplier registered trademarks that conflict with yours? This is a common tactic — register a foreign buyer's brand in China, then hold it hostage.
- Verify the supplier's own IP portfolio: Does the supplier hold any patents or utility models in the product category? If yes, this is a positive signal of technical capability. If the supplier claims to manufacture patented products but holds no patents, they are likely a reseller.
For IP-sensitive manufacturing, a properly drafted OEM contract with IP assignment clauses is essential. We cover the specific clauses needed in our OEM contract clauses guide.
Check 9: Comprehensive Legal Risk Opinion
Checks 1 through 8 gather data. Check 9 interprets that data from a PRC legal perspective. A series of moderate flags — low paid-up capital, a recent change in legal representative, a minor tax penalty — may look manageable in isolation. Together, they form a pattern of a company structured to collect deposits and absorb liability with no real assets.
This is the step where most buyers need professional help. Understanding how Chinese courts will interpret a contract with this entity, whether an asset preservation order can be obtained against it, and what enforcement mechanisms are available requires PRC legal expertise.
Our Comprehensive Due Diligence service ($999+) includes a formal legal risk opinion that synthesizes all nine checks into an actionable recommendation: proceed, proceed with conditions (specific contract clauses, payment terms, escrow), or walk away.
Due Diligence vs. Basic Check: Comparison Table
| Verification Point | Basic Check ($99) | Due Diligence ($499+) |
|---|---|---|
| Business license | USCC verification, registration status | Business scope analysis, paid-up capital ratio, operating period, annual report review |
| Ownership | Legal representative name | UBO tracing through holding structures, cross-referencing across jurisdictions |
| Court records | Current litigation as defendant | Full litigation history, enforcement actions, dishonesty blacklist, past judgments |
| Financial health | Not included | Social insurance trends, tax status, annual report analysis, export/import history |
| Factory verification | Not included | On-site inspection with geo-tagged photos, production capacity assessment |
| Supply chain | Not included | Supplier dependency analysis, subcontractor investigation |
| IP/trademark | Not included | CTMO database search, conflicting registration check |
| Legal opinion | Risk flag summary | Comprehensive legal risk matrix with actionable recommendation |
When to Escalate to Professional Due Diligence
Use this decision framework:
- Orders under $5,000: DIY verification using our 10-point supplier verification checklist plus a basic Background Check ($99)
- Orders $5,000–$50,000: At minimum, Litigation & Risk Assessment ($399) plus a third-party factory visit
- Orders $50,000+ or first-time supplier relationships: Full due diligence with UBO tracing, on-site verification, and legal opinion ($999+)
- Orders $200,000+ or OEM/ODM with IP exposure: Comprehensive Due Diligence ($1,999) plus a bilingual OEM contract with IP assignment clauses
Frequently Asked Questions
A full 9-point due diligence takes 5-7 business days. The limiting factor is typically the on-site factory visit, which requires scheduling a local inspector. The remote components — license analysis, UBO tracing, court records — can be completed within 48 hours. Rush delivery (3 business days) is available for an additional fee.
A legitimate supplier expecting a large order has no reason to refuse basic verification requests — USCC number, factory address, bank account details. If a supplier refuses to provide documents that any legitimate Chinese company has by default, treat the refusal as a failed check and walk away. In our experience, 100% of suppliers who ultimately defaulted on delivery had previously resisted due diligence requests.
Yes, but it requires cross-jurisdictional investigation. The Chinese entity is typically the operating company with the factory, while the HK/BVI entity holds IP or serves as the contracting party. Professional due diligence traces ownership through all layers. A contract with only the offshore entity — without the Chinese operating entity as a co-signatory or guarantor — leaves you with limited recourse against the factory itself.
For a small business placing a $10,000 first order, losing the full amount could be existential. A $999 due diligence is 10% of that order — expensive, but far less expensive than losing the entire deposit. If the cost is prohibitive, at minimum: verify the business license on Qichacha, insist on 30/70 payment terms (30% deposit, 70% after inspection), and use an escrow-compatible payment method. These three steps alone eliminate the majority of scam suppliers.