Due Diligence in China + Website: Beyond the Checklists

Chapter 4

Operational, Commercial, Legal, and Other Due Diligence

Following from chapter 3, this chapter will focus on the rest of the components of due diligence in the compulsory checklists as well as the ones in the optional checklists.

In China’s context, conducting financial due diligence without also physically verifying the company’s operations would be as good as digging your own grave. Not keeping in touch with the country’s commercial and legal developments could also result in huge write-downs in investments in the future. Other aspects of the business such as bankruptcy prediction, environmental issues, corporate cultures, and human resources are also important to the success of investments in China.

Readers have to be reminded to seek professional help in leading the different types of due diligence mentioned in this chapter. The role of consultants cannot be bypassed because they have the experience and local knowledge to utilize different approaches, based on each unique situation, to achieve the best results. Having said that, after considering the different opinions of the professional consultants, investors are still required to form their own independent opinions and decide whether the risks are acceptable enough to proceed.

Revisiting the compulsory checklists:

1. Financial

2. Operational

3. Commercial

4. Legal and intellectual property

5. Balanced scorecard

6. Predicting bankruptcy—Altman Z scores

OPERATIONAL DUE DILIGENCE

Operational due diligence is a very ...