Home › Guides
Due diligence

Due diligence before a China joint venture or distribution deal (2026)

Last updated: · By Sarah Liu, Thornfield Resources

Short answer: before you sign a joint venture, an exclusive distribution agreement, a licence or a large supply contract with a Chinese company, confirm five things: who really owns and controls it, whether money flows to related companies, whether your brand is protected in China before you share it, whether state or sanctioned parties sit in the chain, and whether you could enforce the contract against its assets. Much of this can be checked from official records. A qualified lawyer in each jurisdiction should draft the contract and advise on the law.

Why these deals need more than a supplier check

  • Longer exposure: you are tied to one partner for years, with your brand, customers or technology.
  • Fewer exits: if an exclusive distributor underperforms, you may be unable to appoint anyone else in China until the term ends.
  • Hidden leakage: revenue and know-how can drain into companies owned by the same people.
  • Enforcement: a contract you cannot enforce against assets in China is only a promise.

The legal framework in brief

China's Foreign Investment Law took effect on 1 January 2020, replacing the old joint venture laws, so foreign-invested companies now follow the Company Law. Older joint ventures had until 31 December 2024 to adjust their structure, for example a board acting as the highest authority. Since 1 January 2025, market regulators stop handling registration changes for those that have not adjusted, and publish the cases. If you are buying into an existing joint venture, check this was done.

The Negative List sets out where foreign investment is restricted or prohibited. The 2024 edition, in force since 1 November 2024, has 29 items and removed the last restrictions in manufacturing. Other sectors may still be restricted, so check yours before agreeing a shareholding.

Under the amended Company Law, in force since 1 July 2024, subscribed capital must be paid within five years and paid-in capital is published. A partner's registered capital tells you what it promised, not what it paid. Our guide on who owns a Chinese company explains how to trace ownership.

Who can bind the company: chops and the legal representative

Article 11 of the Company Law says the company bears the legal consequences of what its legal representative does in its name. Limits on the legal representative's powers in the articles, or set by shareholders, cannot be used against a counterparty acting in good faith. The company chop is its legal seal.

In practice: check that the signatory is the registered legal representative or holds written authority, that the chop shows the exact registered Chinese name, and who keeps the chops. In a joint venture, whoever holds the chops and the legal representative role controls daily action, whatever the shareholding says.

Related parties: same people, same address

Leakage runs through companies that look independent but are not. The clue is often on the register: the same shareholders, directors, legal representative, address, phone number or email across several companies. Typical forms: a distributor reselling through its own affiliate at a mark-up, purchases routed through the partner's other companies above market price, or a sister company competing under a similar name.

In China, a VAT invoice (fapiao) is the official tax record of a sale, and it can be checked against the tax authority's verification service. Sales without matching fapiao, or fapiao from a different company, deserve a question.

What to checkWhere it showsRed flag
Exact legal entityBusiness licence, official register, credit codeContract, chop or bank account in a different name
Owners and controllersShareholder records, followed up the chainOffshore holding company with no explanation, or recent change of owner
Capital actually paidPublished paid-in capitalLarge subscribed capital, little or nothing paid
Signing authorityRegistered legal representative, board resolutionsSignatory is not the legal representative and has no written authority
Related companiesShared people, addresses and contacts on the registerAffiliates in the same trade the partner did not disclose
Revenue claimsFapiao, audited accounts, tax filingsClaimed sales with no matching fapiao
State or sanctions linksTop of the ownership chain, sanctions listsState body or designated party in the chain, undisclosed
Your brand in ChinaChina's trademark registerPartner or its affiliate has already filed your mark
Disputes and debtsCourt judgments, enforcement and defaulter recordsRepeated unpaid judgments or frozen assets

IP and exclusivity

  • Register your marks first. China generally follows a first-to-file system. A Latin-script registration does not protect your Chinese name, so file both, before distributor talks. A distributor may otherwise file first. The revised Trademark Law, from 1 January 2027, keeps first-to-file and shortens the opposition period from three months to two. See how UK companies can sell in China.
  • Exclusivity and competition law. China's Anti-Monopoly Law, amended from 1 August 2022, covers agreements between suppliers and distributors. Fixing resale prices is a particular risk. Rules in force since 1 February 2026 set safe harbours: market shares below 15% for non-price restrictions, and below 5% with relevant turnover under RMB 100 million for resale price restrictions. A Chinese competition lawyer should review territory, exclusivity and pricing clauses.

Enforcement: choose the forum before you need it

  • New York Convention: China has applied it since 1987, so arbitral awards made in other member states, including the UK and Singapore, can generally be enforced there.
  • Hong Kong (HKIAC): since 1 October 2019, parties to Hong Kong-seated arbitrations run by qualifying institutions, including HKIAC, can ask mainland courts for interim measures, such as freezing assets, before the award.
  • Mainland China (CIETAC): a mainland seat gives direct access to Chinese court preservation. China's revised Arbitration Law took effect on 1 March 2026.
  • Singapore (SIAC) or London: enforceable under the Convention, without the Hong Kong interim measures arrangement.

Name the exact Chinese legal entity and check it holds assets worth pursuing. Your lawyers should advise on seat, rules and governing law.

Doing due diligence lawfully

China's revised Counter-Espionage Law took effect on 1 July 2023 and covers documents, data and materials related to national security and interests. In 2023 the authorities fined Mintz Group after raids on its Beijing office. The Provisions on Promoting and Regulating Cross-Border Data Flows, in force since 22 March 2024, exempt some transfers of personal information, but important data still needs a security assessment. Your partner may properly decline to send some files abroad. Plan for review in China or redacted copies, and rely on public records and open enquiries.

A six-step sequence before signing

  1. Confirm the exact Chinese legal name and credit code of every party that will sign, and of the joint venture company if it exists.
  2. Trace ownership and control up the chain, and screen for state ownership and sanctions (see forced-labour and sanctions screening).
  3. Map related companies by shared people, address and contacts. Compare with the partner's own list.
  4. File your trademarks in China, in Latin and Chinese characters, before sharing brand plans.
  5. Test the numbers: paid-in capital, fapiao and accounts against what the partner tells you, plus court and enforcement records.
  6. Give the findings to lawyers in China and at home, so signing authority, chops, related-party, exclusivity and dispute clauses reflect what you found.

How we help

We are independent and paid only by our clients, never by the companies we investigate. A Supplier Check (from £175) confirms the company is real and covers the first layer of ownership. For a joint venture, distribution deal, licence or large contract, Enhanced Due Diligence (from £2,500) traces ownership and control as far as the records go, maps related companies, checks court and enforcement records, screens for sanctions and state links, and reports what could not be confirmed. We are not a law firm; we work alongside your lawyers.

Frequently asked questions

Should I register my trademark before or after signing with a distributor?

Before you start talks. China generally gives priority to whoever files first, and a distributor or third party may file your brand. Register the Latin-script and Chinese-character marks separately.

Can my Chinese partner refuse to send documents abroad?

Sometimes with good reason, if files hold personal information or important data under China's rules. Arrange review in China or redacted copies, and take advice on what can lawfully be transferred.

Can I just choose English courts in the contract?

You can, but enforcing an English judgment in China is still uncertain. Arbitration usually gives a clearer route. Take advice from a qualified lawyer.

Sources