Every business transaction includes a level of risk, for the buyer and for the seller. These can include upfront payment exposure, scams, shipment and quality issues, as well as contractual weaknesses. In these videos, SMEs will find the two keynote presentations from a workshop on risk mitigation organised by the EU SME Centre and the European Chamber in February 2026.
In the first video above, Moey Li, Representative of Dewit Law Office in Beijing, expands on the common red flags and protective measures laid out in our recent guidelines Simple Steps to Minimise Risks of Scams. She highlights recurring issues such as vendor fraud, breach of contract, counterfeit or non-existent companies, defective goods, delayed or missing payments, and hidden costs that extend beyond immediate financial losses. The presentation also outlines practical due diligence measures, legal safeguards, essential contract clauses for cross-border trade, and dispute resolution options.
Operational due diligence and business intelligence
In the second video, Icey Xu, Head of Operations at PSU China, details operational due diligence measures in practice for SMEs, with a focus on business intelligence. With case studies of European companies , she highlights how on-site inspections, background checks and compliance audits can uncover hidden ownership structures and fraudulent practices.
The workshop also invited companies to ask their questions on risk mitigation to the two speakers. Below is a selection of the questions raised:
Q1: Do digital company stamps exist in China?
A: Yes. Chinese companies can use digital stamps or digital signatures in contracts, often through dedicated apps. While authentication can sometimes be verified, it may be difficult for European companies to confirm whether a digital stamp is genuine.
Q2: If a long-term distributor pushes for the creation of a joint venture, what steps should a European company take?
A: The company should begin with business intelligence and due diligence to fully understand who the partner is. These measures should include checking the company’s registration details, certificates, and structure. Once this is done, it is useful to conduct face-to-face discussions, risk evaluation, and further legal, technical and strategic assessments before proceeding.
Q3: How can companies request documentation without damaging the business relationship?
A: All parties should have in mind that transparency is essential to building mutual trust. Asking for documentation such as a business licence should be seen as a normal part of establishing a solid, long-term relationship. Both sides should be prepared to prove who they are.
Q4: How can a company confirm whether a supplier is a genuine manufacturer or just a trading company?
A: Check the business scope on the business licence to see whether manufacturing is included. If there is no mention of production, it is probable that you are dealing with a trading company. VAT invoices can also provide clues, as manufacturers can issue invoices with specific VAT rates. In any case, on-site checks are advisable because some companies may pretend to have their own factories.
Q5: Is unpaid registered capital always a red flag?
A: It depends on the context. If the registered capital is very large and nothing has been paid, this may be concerning. However, newly established companies may still be within their legally permitted contribution period. The annual report and articles of association can clarify this.
Q6: How can a company assess a business partner’s financial health in China?
A: Although detailed financial reports are not usually public for non-listed SMEs, public information such as disputes, operational status and signs of financial distress can provide indications. Companies can also compare information provided directly by the supplier with publicly available data and conduct database checks.
Q7: What can SMEs do if they bought goods through e-commerce platforms without a contract?
A: Even for e-commerce transactions, it is strongly recommended to have at least a simple contract. Without one, legal action becomes more complicated and burdensome, especially when proving the transaction in court.
Q8: What should a company do if, after paying a deposit, it is asked for unexpected additional fees?
A: The company should request a clear explanation in writing, preserve evidence (preferably via email), and consult experts to verify whether the request is legitimate. If the request is unreasonable, it may be better to stop the transaction and seek a refund.
Q9: What are early warning signs that something is taking a turn for the worse in an existing buyer-supplier relationship?
A: Slower responses, declining service quality or unusual behaviour can signal problems. Companies should request updated information and conduct periodic reviews or audits, especially when warning signs appear.
Q10: Is there a financial threshold below which legal action is not worthwhile?
A: There is no fixed threshold. Even small cases may be resolved efficiently with professional intervention. However, after evaluating the situation and body of evidence, if recovery appears impossible, it may be advisable to stop pursuing the matter.
Q11: Can WeChat communication be used as legal evidence in China?
A: Yes, WeChat communications can be accepted as evidence. However, they generally need to be notarised to meet evidentiary requirements, as chats can be deleted.
Q12: What are the accessible databases to check Chinese companies?
A: There are public government databases containing registration and litigation information, though they are usually in Chinese and may require account registration. Some private databases also exist. See more in our guidelines, Simple Steps to Minimise Risks of Scams.
Q13: What is the average duration of litigation in China?
A: For domestic cases, the first instance can typically take around nine months and the second instance around six months. Foreign-related cases may take longer, and timelines depend on the court and caseload.
Q14: Are payment platforms such as PayPal safe for transactions?
A: They may be suitable for small transactions, particularly on third-party platforms. However, many Chinese suppliers prefer bank transfers. For larger transactions, a letter of credit is strongly recommended.
Q15: Is there a blacklist of problematic companies?
A: Yes. Companies and legal representatives who fail to comply with court judgments may be listed on official blacklists. These can be checked through public systems and certain databases.
Q16: What are the most common mistakes companies make?
A: Common mistakes include not having a contract and trusting information without verifying it. Failing to overcome language barriers and lacking proper preventive measures can make problems worse. Prevention and verification measures are essential to avoid costly losses later.
