Why is it essential to conduct a thorough due diligence when acquiring companies in China?

M&A is one of the key investment vehicles with which foreign companies can enter the Chinese market. Since the turn of the century, the Chinese government has progressively been introducing new taxation and regulatory frameworks to govern how company acquisitions are conducted, which has alternatively served to simplify, complicate, and convolute the acquisition process. Failure to flag operational, financial and legal problems in the acquired company, as well as a lack of understanding of the Chinese market, can prove extremely costly. Conducting a thorough due diligence is therefore essential.