What are Company Health Checks, and Why Do Foreign Companies in China Need one in 2025?

Operating in China’s fast-evolving regulatory environment presents unique challenges for foreign companies. A company health check in 2025 can help businesses identify risks, ensure compliance, and optimize operations. Learn why proactive assessments are essential for long-term success.

Maintaining the health of a company anywhere is crucial for its long-term success. This is especially true for foreign invested enterprises (FIEs) in China. China’s dynamic business environment has rapidly evolved over the past several years, resulting in unique and rapidly changing policies and regulatory requirements that outpace the local and overseas management’s notice in many companies resulting in growing issues that may need to be dealt with before costly consequences arise.

A comprehensive “company health check” can help these companies navigate the complexities of operating in a foreign market and ensure their continued growth and compliance.

What is a company health check?

A company health check is a comprehensive assessment of a business’s overall well-being, evaluating key areas such as compliance, financial performance, operational efficiency, and internal controls. This process involves a detailed review of systems, practices, and workflows to identify vulnerabilities, optimize performance, and mitigate risks. By conducting regular health checks, companies can proactively address challenges, ensure regulatory compliance, and strengthen long-term resilience.

Why do FIEs in China need a health check?

FIEs in China operate within a complex and constantly evolving regulatory landscape. Navigating compliance requirements, financial risks, and operational challenges can be particularly difficult for foreign businesses unfamiliar with local regulations and business practices.

A company health check helps bridge the gap between corporate-level risk management priorities and the local team’s awareness, capabilities, and resources. Differences in regulatory understanding, operational execution, and compliance enforcement can create vulnerabilities that, if left unaddressed, may lead to financial penalties, operational disruptions, or reputational damage.

Moreover, China’s regulatory environment is dynamic, with frequent updates to tax policies, labor laws, cybersecurity regulations, and industry-specific compliance requirements. Foreign companies risk accumulating unnoticed compliance gaps, inefficiencies, or financial risks that could escalate over time without regular assessments. Conducting a thorough health check allows businesses to proactively identify and resolve these issues, ensuring smoother operations, regulatory adherence, and long-term sustainability in the Chinese market.

What does a company gain from performing a company health check?

Conducting regular health checks provides FIEs in China with critical insights and tangible benefits, ensuring long-term stability and success in a dynamic business environment. Key advantages include:

• Regulatory Compliance: FIEs must adhere to local laws and regulations, which can be intricate and subject to frequent changes. A health check identifies areas where a company may be out of compliance and exposed to consequences and penalties.
• Risk Mitigation: Operating in a foreign market exposes companies to various risks, including financial, operational, and reputational risks. A health check can help identify and address such risks so that a company can mitigate them before they develop into a larger issue.
• Financial Performance: A business health check can provide insight into a company’s financial health and identify areas for cost reduction, revenue enhancement, and tax optimization. This is crucial to maintaining profitability and competitiveness for a foreign company in China.
• Protect Company Value: Whether to protect a brand, maximize valuation for a future merger or acquisition, or comply with the requirements of being a publicly traded company, health checks and in-depth reviews help signal issues or provide the assurances required by external parties and organizations. They can help flag value leaks with physical assets, data and network assets, human capital assets, Intellectual property assets, and other areas.
• Operational and Digital Efficiency: By assessing and optimizing operational processes, a health check can enhance the company’s efficiency and productivity. This is particularly important for FIEs that need to compete with local businesses.
• Strategic Planning: Health checks provide valuable data and insights that can inform strategic decision-making. This enables FIEs to adapt to market changes and seize growth opportunities.

What factors make company health checks essential for businesses in 2025?

Several factors drive the need for health checks, especially for FIEs. These include regulatory changes and growing risks in how businesses are managed or internally controlled.

Different types of health checks: light, standard, and in-depth reviews

There are different forms of health checks that a business can perform on their China entity. Whether a light health check, a standard health check, or an in-depth review is required can depend on many factors, and they range from less expensive to conduct and quick to perform to more costly and time-intensive in-depth reviews.

The three main types are:

• Light health checks: A quick overview of one or several business areas, primarily through discussions, to identify common issues and oversights. This is a vital routine check for any company.
• Standard health checks: An overview of one business area through consultation, review, and analysis to assess potential business and compliance issues. This helps departments ensure they are on top of key changes.
• In-depth reviews or assessments: A thorough examination of one business area through consultation, in-depth review, interviews, and analysis to verify or identify potential issues. This is essential for companies considering M&A and as a routine check for larger and publicly traded companies.

Companies are advised to contact an appropriate service provider to request offered services and quotations of actual costs, time, and durations based on their specific situation and requirements.

Also read: Conducting a Company Health Check in China 2025: Essential Steps and Checklists

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