China Supplier Due Diligence: What to Check Before Sending Money

You have found a Chinese manufacturer. Their website looks professional. They respond quickly in good English. They have sent you a quotation and samples. They seem ready to start production as soon as you send the deposit.

Before you send that deposit — before you send drawings, artwork, specifications, or any proprietary information — there is a set of checks that collectively answer one question: is this entity who they claim to be, and can they do what they promise? This guide sets out the complete due diligence framework in three levels of depth, matching the three stages of a typical sourcing relationship.

The three levels

Each level builds on the previous one. The Snapshot answers “who are they?” The standard review answers “can they deliver?” The comprehensive investigation answers “what could go wrong at scale?”

Level 1: Supplier Risk Snapshot (pre-disclosure)

The Snapshot is the minimum check before sending any confidential information to a new supplier. It covers six items, all of which can be completed from public records within 48 hours.

1.1 Entity confirmation

Verify the supplier’s registered Chinese legal entity on the National Enterprise Credit Information Publicity System (gsxt.gov.cn). Confirm:

• The exact registered name (which may differ from the operating name on their business card)
• The Unified Social Credit Code (18-character identifier)
• Registration status (must be 存续 — active)
• The registered address

This is the foundational check: if the entity is not registered or has been deregistered, every subsequent step is irrelevant. For the complete entity verification process, see How to Verify a Chinese Supplier’s Registered Legal Entity.

1.2 Business scope analysis

The business scope (经营范围) on the registration tells you whether the entity is licensed to manufacture or only to trade. A manufacturer’s scope includes the Chinese characters 生产 (production) or 制造 (manufacturing). A trading company’s scope lists only 批发 (wholesale), 零售 (retail), and 进出口 (import-export).

If you are contracting with a trading company that presents itself as a factory, your NNN agreement and your manufacturing agreement will bind the intermediary — not the entity that actually holds your moulds and drawings. For the five identification signals, see Trading Company vs. Factory: Five Red Flags.

1.3 Financial baseline

From gsxt.gov.cn, extract:

• Registered capital (注册资本): the amount subscribed. A factory typically requires RMB 5 million or more for land, buildings, and machinery. A trading company with RMB 500,000 claiming to be a factory is a red flag.
• Paid-in status (实缴): whether the capital has actually been contributed. Since the 2014 company law reform, capital can be subscribed without immediate payment — a large subscribed amount with zero paid-in tells you the entity has limited actual resources.
• Annual report compliance: whether the company has filed its mandatory annual reports. Missing filings indicate compliance neglect and may flag abnormal-operation status.

1.4 Litigation screen

Search the entity’s registered Chinese name on China Judgements Online (裁判文书网, wenshu.court.gov.cn) — the official court judgment database. Look for:

• Intellectual property disputes — has the company been sued for infringement or misappropriation?
• Contract breach claims — patterns of supplier or buyer disputes
• Product quality litigation — judgments for defective products
• Enforcement cases (执行案件) — court-ordered enforcement against the company indicates unpaid judgments

Also search the legal representative’s personal name — if the same individual appears in litigation across multiple companies, this suggests a serial operator who may use corporate structures to avoid liability.

1.5 Chop and execution requirements

Confirm the name that will appear on the company chop (公章) and verify it matches the registered name. Determine who is authorised to sign contracts (ideally the legal representative listed on the registration). A contract signed by an employee without the company chop is vulnerable to an authority challenge.

1.6 Red-flag review

A final sweep for:

• Abnormal-operation status (经营异常) on gsxt.gov.cn
• Administrative penalties (行政处罚) — quality, environmental, or tax violations
• Revoked or suspended licences
• Sanctions listing
• The company appearing on any government blacklist

Level 2: Standard Due Diligence Review (pre-payment)

The standard review adds four checks that require professional analysis beyond what public records alone can reveal.

2.1 Related-party mapping

Chinese factory groups frequently operate through multiple legal entities — a parent company, a manufacturing subsidiary, a trading company, and sometimes a research subsidiary. Each entity is a separate legal person. Your contract binds one entity; your drawings may flow to another.

A related-party map identifies:

• The corporate group structure (who owns whom)
• The entity that owns the production facility
• The entity that will sign your contract
• The entity that will receive your drawings and moulds
• Whether these are the same or different entities

If they are different, your contract architecture must ensure that every entity in the chain that touches your confidential information is directly bound by your NNN agreement.

2.2 Financial health analysis

Beyond the baseline from gsxt.gov.cn, a financial health analysis examines:

• Liquidity indicators: can the company fund production of your order before receiving your payment?
• Debt burden: existing litigation for unpaid debts, enforcement proceedings, or tax arrears
• Solvency risk: a company facing multiple enforcement actions may be near insolvency — your deposit could disappear into a bankrupt entity

2.3 IP risk screen

Search CNIPA (China National Intellectual Property Administration) databases for:

• Trademark filings by the supplier — have they filed trademarks for products or brands similar to their clients’?
• Patent filings by the supplier — have they filed design patents on products they were commissioned to manufacture?
• Prior infringement findings — has the company been found liable for IP infringement in any administrative or judicial proceeding?

A supplier with a pattern of filing IP rights on their clients’ products is a supplier that will do the same to you.

2.4 Industry-specific compliance check

Depending on your product category, verify:

A factory that does not hold the required licence for your product category cannot legally manufacture it — regardless of what their sales team tells you.

Level 3: Comprehensive Investigation (pre-production)

The comprehensive investigation adds physical verification and deep analysis. It is recommended before committing to volume production, significant tooling investment, or a long-term supply relationship.

3.1 On-site audit

An on-site audit — conducted by your own team, a third-party inspection company (SGS, BV, QIMA, TÜV), or your lawyer — verifies:

• The factory physically exists at the registered address
• The production equipment matches the claimed manufacturing capability
• The quality control system operates as described
• The workforce size is consistent with the claimed capacity
• Your product is manufactured on-site (not subcontracted without disclosure)
• Working conditions and environmental compliance (relevant for brand reputation and some buyer compliance programs)

3.2 Deep financial analysis

For significant supply relationships, a deeper financial review may include:

• Bank reference checks
• Credit reports from Chinese credit agencies (e.g., Huaxia Dengxin, Dun & Bradstreet China)
• Analysis of the company’s litigation exposure relative to its registered capital
• Assessment of the group’s overall financial stability (if the factory is part of a corporate group)

3.3 Supply chain mapping

For products with multiple components or materials, map the supplier’s own supply chain:

• Key material suppliers and their reliability
• Subcontracting arrangements (which processes are outsourced)
• Single-source dependencies that could disrupt your production
• Second-tier supplier risk (e.g., a critical component from a sole-source provider)

The cost asymmetry

The cost of due diligence is trivial against the cost of skipping it:

In every scenario, the prevention cost is a fraction — often one-tenth or less — of the consequence cost.

How we work

We provide all three levels as fixed-fee services:

• Supplier Risk Snapshot — USD 250–500, 48 hours. Entity verification, business scope, financial baseline, litigation screen, chop requirements, red-flag review.
• Standard Due Diligence Review — USD 800–1,500, 3–5 business days. Everything in the Snapshot plus related-party mapping, financial health, IP risk screen, and industry-specific compliance.
• Comprehensive Investigation — USD 1,500–2,500, 1–2 weeks. Everything in the standard review plus on-site audit coordination, deep financial analysis, and supply chain mapping.

After due diligence, the next step is an NNN agreement before any disclosure. See China NNN Agreements: The Complete Guide for the full framework.

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