Imagine signing a major contract with a Chinese company, confident in their reputation and financials, only to discover the entity you’re dealing with is an unverified branch operating outside its legal scope. For international businesses, overlooking the verification of Chinese company branches isn’t just an oversight—it’s a critical risk.
Branches (分公司, Fēn Gōngsī) are not independent legal entities under Chinese law. They operate under the parent company’s license, which assumes full liability for their actions. This structure creates unique risks for foreign partners:
- Legal Liability: A branch’s contractual obligations or violations (e.g., fraud, regulatory breaches) directly implicate the parent company.
- Operational Vulnerability: If the parent company faces financial trouble or dissolution, branches cease operations immediately.
- Compliance Risks: Branches operating beyond their registered scope (e.g., unauthorized services, locations) expose partners to penalties.
Why Branch Verification Is Non-Negotiable
- Avoiding “Ghost” Operations:
Unregistered branches lack legal standing. In 2023, Shanghai authorities shut down 127 illegal branch operations involved in fraudulent exports. - Validating Contractual Authority:
Only branches explicitly authorized in the parent’s business scope can sign contracts. A branch manager’s signature alone is insufficient without proof of delegated power. - Uncovering Hidden Risks:
A parent company’s clean record doesn’t shield branches from violations. In 2024, a Shenzhen tech firm was fined ¥2M after its Beijing branch violated data laws.
The Challenge: How to Verify Authenticity
China’s branch data is fragmented across systems, often in Chinese, and updates lag. Key hurdles include:
- Data Silos: Registration (市场监管部门), tax records, and licenses live in separate databases.
- Language Barriers: Official documents use complex legal Chinese.
- Real-Time Gaps: Updates to branch openings/closures take weeks to appear.
Step-by-Step Verification Guide
1. Confirm Existence & Registration
- Source: National Enterprise Credit Information Publicity System (国家企业信用信息公示系统, www.gsxt.gov.cn).
- Key Details:
- Registration number
- Operating address (must match actual location)
- Approved business scope
- Red Flag: No record = illegal operation.
2. Cross-Check Parent Company Authorization
- The parent’s business license (营业执照) must list branch establishment.
- Verify the branch’s scope falls within the parent’s authorized activities.
3. Scrutinize Leadership & Authority
- Branch managers are appointed by the parent. Cross-check their name with the parent’s official filings.
- Demand a Power of Attorney (授权书) proving the manager can sign contracts.
4. Investigate Operational Compliance
- Physical inspection: Does the address match? Is the scope displayed onsite?
- Local government portals: Search for violations (e.g., 信用中国, Credit China).
5. Monitor for Changes
- Branches must report closures/changes within 20 days. Quarterly checks prevent surprises.
Case Study: The Cost of Overlooking Branches
A German machinery importer partnered with a Zhejiang manufacturer’s “Shanghai branch” in 2023. The branch:
- ✅ Was registered on GSXT
- ❌ Operated from an unauthorized warehouse
- ❌ Sold products outside the parent’s scope (medical devices vs. industrial tools)
Result: ¥500K fine for the German firm + contract termination.
Solutions for International Businesses
While GSXT is public, verification demands local expertise:
- Leverage Official Enterprise Credit Reports: These consolidate branch data from GSXT, tax, and regulatory sources, translated and analyzed.
- Conduct Onsite Audits: Use local partners to validate addresses and operations.
- Automate Monitoring: Third-party providers track branch status changes in real-time.
Pro Tip: Always request the parent company’s Articles of Association. It outlines branch governance rules—crucial for dispute resolution.
Key Takeaways
- Branches have zero legal independence—parent companies absorb all risk.
- Registration ≠ Compliance: Cross-check scope, authority, and physical operations.
- Continuous monitoring is essential. 30% of branches expand beyond approved activities within 2 years.
For due diligence that protects your business, start with the source: China’s Official Enterprise Credit Report. It transforms fragmented Chinese regulatory data into actionable intelligence—so you partner with confidence.