One of the blogs that we really enjoy is the China Law Blog, which is written primarily by Dan Harris of Harris Bricken. Dan recently wrote a post about the pitfalls of relying on a representation by a non-Chinese company that they own a manufacturing facility in China.

As Dan states directly:

Here’s the deal. No American or European or Australian company (or any other non-Chinese company) can own a Chinese factory directly. It is possible the American or European or Australian company that claims to own a Chinese factory owns a Chinese company (a WFOE maybe or a China Joint Venture) that in turns owns a Chinese factory, but the odds of this being the case are really slim.

Dan goes on identify the risks of relying on a representation that a Chinese manufacturer is owned by a non-Chinese company. All of these points are valid.

Here is one more to consider. A lot of manufacturers run into problems when they are dealing with a Chinese company and they do not think about whether it is government owned or not. Such information is critical when assessing compliance risks, including most notably, potential violations of the Foreign Corrupt Practices Act (FCPA). For that reason, it is imperative for manufacturers to have a direct line of sight into their business relationships in China regardless of what their customer/supplier tells them at the outset.