A background investigation of a Chinese company should always include a litigation check that examines compliance with local regulations and involvement in legal disputes. I will here introduce the two most important sources that are completely free to use and fundamental for conducting a comprehensive litigation check on a Chinese company.
The first litigation check source - NECIPS
The National Enterprise Credit Information Publicity System (NECIPS) holds registration data on all legal entities in China (read more about NECIPS here) but also discloses information on legal compliance.
How visitors can search for legal compliance records in the NECIPS databank is exemplified by a case study of Tianjin Sayca Wood Co., Ltd (天津赛克木业有限公司) that I have been investigating before.
The screenshot from the NECIPs databank shows that the operation status (highlighted in blue) for Tianjin Sayca Wood Co., Ltd is active but there is one remark about abnormal business operation (highlighted in red).
In the bottom of the screenshot there are shortcuts to four different categories of legal compliance information:
- Administrative licensing information (Remarks on licensing/registration that do not comply with requirements. )
- Information on Administrative penalties (penalties by government authorities and regulatory bodies)
- Abnormal business operations
- Blacklisted and dishonest operation with law violation record.
There are no remarks to Tianjin Sayca Wood Co., Ltd under administrative licensing (category 1) and the company has no blacklisting records (category 4) but there is one record under administrative penalties (category 2)
The record tells that on 9th of October 2015, Tianjin Sayca Wood Co., Ltd was fined CNY 220,000 by the Environmental Bureau in Tianjin due to air pollutants that exceeded the limit. The information shows that Sayca Wood has paid the fine.
Under abnormal business operation (category 3) there are 4 records issued by the Tianjin Market and Quality Supervision Administration:
The first record shows that Tianjin Market and Quality Supervision Administration has been unable to contact the company in December 2017. The other 3 records are addressing negligence to submit required information in the annual report to Tianjin Market and Quality Supervision Administration.
The 4 records that belong to abnormal business operation are not serious violations but they do indicate possible operation irregularities and being on the watchlist for abnormal business operation can have an impact on credibility and confine business activities.
China's Enforcement Information Website is hosted by The People's Supreme Court and it is a public platform where visitors can search for lawsuit cases that involve individuals and companies. Below is a screenshot of the front page of the Enforcement Information Website:
On the screenshot there four numbered inquiry categories that combined provides a comprehensive litigation search on a Chinese company. The numbered four categories are:
- Information on blacklisted dishonest companies that have failed to comply with court orders.
- Information on companies who are subject to enforcement by a judgment
- Information on termination or closure of enforcement case
- Information on court rulings from China Judgements Online
To illustrate how the different inquiries work in practice, I will use Tianjin Sayca Wood Co., Ltd again. The first inquiry is on companies that are blacklisted as dishonest because they have failed to comply with court orders. Here is a screenshot of the search page:
Now remember that Tianjin Sayca Wood Co., Ltd was not blacklisted in the NECIPS database but an inquiry on dishonest blacklisted companies displays 6 records that label Sayca Wood as a dishonest blacklisted enterprise.
Clicking on the first record shows information about the court ruling, file number, location, jurisdiction, and a case summary. The record shows that Tianjin Sayca Wood failed to comply with a court ruling that ordered the company to pay back a loan of CNY 15,000,000.
The second inquiry category is about information on companies who are subject to enforcement by a judgment. This inquiry turns out 10 records of which 9 of the cases are opened in Tianjin and 1 case opened in Heilongjiang.
Clicking on the first case gives information about the court, date and file number which are important references to dig further into the substance of the case.
Search for information on court rulings
An inquiry about closure of enforcement cases is fruitless so next step is to search for court rulings in the databank China Judgements Online. On this platform, visitors can search for court rulings that covers criminal cases, civil cases, compensation cases and so on. Here is a screenshot of the search page:
An inquiry for records linked to Tianjin Sayca Wood generates 180 results which suggest that the company lawyers must be very busy.
A click on a court ruling record gives access to a full report that can be downloaded. China Judgements Online is a great source to cross-reference and gain more details on findings from inquiries on dishonest companies and companies who are subject to enforcement by judgement. China Judgements Online is also a useful instrument to discover litigation information that is not found from other inquiries on the Enforcement Information Website.
Final note
NECIPS and the Enforcement Information Website with no doubt the best sources for valuable litigation insights on a Chinese company. Conducting a litigation check should always be a high priority component for building a complete profile and evaluation of a Chinese company. The information from NECIPS and the Enforcement Website also works as useful references to dig deeper by adding relevant information disclosed by other government agencies and the media.
