Byline: Alysha Webb
A European company wanted to buy a parts manufacturer in China and asked the Chinese company to get rid of a superfluous trading arm. No problem, said the parts maker.
After a letter of intent was signed in the $10 million deal, the European partner enlisted Shanghai lawyer David Zou to investigate further. He found that the trading arm was still a part of the company. The chairman had sold it to his mistress.
Hidden assets are just one potential surprise awaiting a foreign company in China. From creative accounting to uncertain property rights, the risks of doing business in China are myriad and often bizarre. Thorough due diligence is a must.
"You need to draft acknowledging language or measures to deal with any problem,'' says Zou. "Once you give your money away, it is very difficult to get the other party …
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