China M&A Due Diligence Checklist

Chapter 7 of the ABA's International Mergers and Acquisitions Due Diligence contains a good outline of considerations and issues arising in connection with China mergers and acquisitions transactions. In addition to customary considerations, Chinese mergers and acquisitions require particular attention to issues such as the following:

"1.2.2 whether the deal involves a State-owned, collectively owned, public, or private company;

1.2.3 whether the deal involves foreign investment...

1.5.1 governmental approvals (in terms of establishment, operation, and etc);

1.5.2 registration with Central and local Administration of Industry and Commerce;

1.5.3 registered capital/total investment, actual capital contributions verifying by CPA, and the yearly examination certificates;

1.5.4 foreign exchange registration if foreign investment involved..."

Additional information in the chapter includes:

"5.1 The public records system in China is often inaccurate and incomplete and limited in terms of the types of records available to the public. Most of the public records may only be available to licensed lawyers or judicial officials...

5.5 There is no public record system available in China for searching environmental issues concerning immovable property. Normally the Buyer may make an oral or written inquiry with the environment protection authorities about the Target. For due diligence exercise purposes, we have seen precedents where confirmation was given by the environment protection authorities to the Buyer about the Target’s compliance with the environmental laws and regulations, and such confirmation is generally
binding and reliable when it is issued...

Government liens, charges, and fines could be found only if they have been announced publicly by the government agency. For example, pension violation fines will be announced generally, but tax violation will not be publicly announced.

5.7 The State Intellectual Property Office of the PRC ( ) maintains records of patent ownerships. The information about a declared patent is available to the public and can be searched on the website of the State Intellectual Property Office. The records of ownership of trademark may be searched at the State Trademark Bureau of the PRC and generally can be obtained within two days upon
request. In most cases, the ownership of copyright is not registered anywhere, however pledges of copyrights may be searched at the State Copyright Bureau of the PRC.

5.8 There is no public record system available for searching for any pending litigation concerning, the company unless such information is statutorily required to be disclosed by a publicly traded company to the Stock Exchange. Unless disclosed by the Seller, lawyers for the Buyer have no channels to obtain such information of pending litigation. The Chinese courts have the right to decide whether or not to accept a filed complaint. When accepted, such information may be obtained from the court. However, since there is no national computer search system, Buyers may only rely on the disclosures of the Seller... "