German Supply Chain Law: China Compliance Guide

Germany's Supply Chain Due Diligence Act (LkSG) requires German companies to ensure human rights and environmental compliance throughout their supply chains, including Chinese suppliers.

Understanding the LkSG

Who Must Comply?

• Companies with headquarters or branch in Germany
• Initially: 3,000+ employees (from 2023)
• Expanded: 1,000+ employees (from 2024)
• Applies to entire supply chain

Key Requirements

• Risk analysis of supply chain
• Prevention and remediation measures
• Complaints procedure
• Documentation and reporting

China-Specific Challenges

Common Risk Areas

• Labor conditions in manufacturing
• Working hours and overtime
• Environmental compliance
• Subcontractor management

Due Diligence Difficulties

• Limited access for on-site audits
• Language and cultural barriers
• Complex multi-tier supply chains
• Verification of documentation

Compliance Strategies

Supplier Assessment

1. Questionnaires and self-assessments
2. Third-party audits
3. Certification verification
4. On-site inspections where possible

Contractual Measures

• Code of conduct requirements
• Audit rights clauses
• Cascading obligations to sub-suppliers
• Termination rights for violations

Monitoring Systems

• Regular supplier reviews
• Grievance mechanisms
• Incident response procedures
• Continuous improvement programs

Working with Chinese Suppliers

Building Cooperation

Effective compliance requires supplier cooperation:

• Explain requirements clearly
• Provide training and support
• Build long-term relationships
• Recognize improvements

Local Support

Consider engaging local resources:

• Local audit firms
• Legal advisors in China
• Industry associations

EU Corporate Sustainability Due Diligence

The upcoming EU directive will expand requirements further. German companies should prepare for:

• Broader scope of covered companies
• Extended supply chain coverage
• Climate-related due diligence
• Civil liability provisions