"More than half of factories in southern China are falsifying payroll documents!"

"Many even create Potemkin factories.... Around the corner is a 'shadow factory' that produces the same goods under much less wholesome conditions."

"There is even a cottage industry of 'falsification engineers' in China--consultants who specialize in doctoring payroll records and coaching workers to create a fiction of compliance with a Western buyer's code of conduct."

The above statements are from Alexandra Harney's latest viewpoint for Plastics News' sister publication AdAgeChina, How to work with Chinese factories without getting burned(registration required). She is a China-based journalist and author.

What's more sensational than the bold statements about unethical business practices in China, is her suggestion that, instead of waiting for Beijing to improve law enforcement, Western multinationals can be a large part of the solution to the problems--whose consequences include costly product recalls, falsified documents and worsening pollution.

Here are the steps Harney suggested taking:

1. Acknowledge that understanding what's happening in the company's supply chain is not simply a matter of risk management or good corporate citizenship; it is a core business issue and a valuable competitive advantage.
2. Build frank, long-term partnerships with Chinese factories, rather than moving orders quickly from one plant to another.
3. Take a field trip at least once or twice a year.

But the most interesting advice was:

Schedule a visit to one of your suppliers, but arrive quietly the night before your appointment, perhaps with a Chinese colleague. Instead of having dinner at the hotel restaurant, eat near your factory and spend time with the locals. Ask them: What's the average monthly wage in this area? Are wages going up or down? What time do most people get off work? What is considered the best factory to work for, and why? Have there been any problems in any of the factories recently, fights or disagreements?

Ask motorcycle drivers that work near your supplier about the hours your factory keeps its lights on, and whether they see a lot of traffic between your supplier and others in the neighborhood.
When you meet the factory manager the next day, ask him the same questions and compare his answers to what you learned the night before.

Sounds like some good advice from a real China expert. However, don't assume the locals and motorcycle drivers -- if there are any -- really know the answers to your questions, even if they provide you with information. Be aware that Chinese Culture 101 dictates that, out of politeness, Chinese people won't tell you no. If the motorcycle driver isn't sure about the hours of the factory, he will probably give you an answer anyway, just to complete the conversation nicely.

So, like any due diligence work, talk to multiple sources with different backgrounds and interests.