The Modern Slavery Act 2018 (Cth) requires entities with annual consolidated revenue of AUD 100 million or more to publish annual Modern Slavery Statements describing their structure, operations, supply chains, risks of modern slavery, and actions taken to assess and address those risks. Template compliance is no longer sufficient—the Australian Government expects evidence of active due diligence, not documentation of good intentions.
For Australian businesses sourcing from China, due diligence goes beyond documents. Factory visits, worker interviews, and independent audits constitute the gold standard for compliance evidence. This guide covers the framework our team uses when helping Australian businesses build China supplier due diligence programmes.
Why China Presents Specific Supply Chain Risks
China's manufacturing supply chains involve multiple tiers—sub-suppliers may not be visible in your direct relationship but carry exploitation risk that flows through to final products. Migrant worker vulnerability (language barriers, contract fraud, document confiscation) creates specific indicators that require on-ground observation to identify.
High-risk product categories include textiles, electronics, footwear, toys, and agriculture—categories where labour intensity is elevated and subcontracting under price pressure is common. Machinery and industrial equipment generally carry lower direct labour risk, but casting and forging sub-suppliers may have elevated risk that requires specific focus.
The Due Diligence Framework: Five Steps
Step 1: Map Your Supply Chain
Identify every direct supplier. Map first-tier sub-suppliers. Note countries and regions where production occurs. Identify highest labour intensity products. This mapping exercise identifies where to concentrate due diligence resources.
For Australian businesses with multiple China suppliers, the risk matrix should rate each supplier by country and region risk (certain Chinese provinces have higher exploitation reports), industry risk (labour-intensive industries rank highest), supplier characteristics (subcontracting, temporary workers, limited audit history), and your leverage (purchasing volume affects what you can require).
Step 2: Assess Risk by Supplier and Product Category
Develop a risk matrix rating each supplier as high, medium, or low risk. High-risk suppliers require the most intensive verification. Lower-risk suppliers require standard compliance requirements in purchase agreements.
For high-risk suppliers, require: written confirmation they do not use forced or child labour, modern slavery policy with cascading requirements through sub-suppliers, independent audits of production facilities, in-person factory visits, and worker interviews through an interpreter.
For medium-risk suppliers, require: annual self-assessment questionnaires, existing audit reports or third-party certifications, and periodic factory visits (minimum every two years).
For lower-risk suppliers, require: compliance requirements in standard purchase agreements and annual confirmations of compliance.
Step 3: Require and Verify Supplier Compliance
Add modern slavery compliance clauses to all purchase agreements with Chinese suppliers. The clause should require: prohibition on forced labour, slave labour, and human trafficking; prohibition on child labour; freedom of movement and non-confiscation of identity documents; fair wages meeting or exceeding legal minimums; reasonable working hours with overtime at legally required rates; safe and healthy working conditions; and requirements for sub-suppliers to meet the same standards.
Verification cannot rely on documents alone. Australian businesses should conduct or commission factory visits to verify conditions on the ground.
Step 4: Conduct Independent Audits
Third-party audit options for China include: international firms (SGS, Bureau Veritas, Intertek, QIMA at AUD 500-2,000 per day), and specialist auditors (Sedex, amfori BSCI, Fair Wear Foundation).
Audit reports should cover: worker recruitment practices, employment contracts, wages, hours, overtime, freedom of movement, migrant worker conditions, health and safety, and dormitory conditions.
Commission a minimum of one independent audit per year for high-risk suppliers. The cost of an audit (typically AUD 800-2,000 for a full factory audit) is a fraction of the legal and reputational cost of supplying products made with forced labour.
Step 5: Document Everything
Maintain records of: supply chain mapping and risk assessment outputs, all supplier communications about compliance requirements, purchase agreement clauses, audit reports and corrective action plans, factory visit reports, worker interview records, any incidents reported and resolutions, and staff training on modern slavery identification.
Document your due diligence process as thoroughly as you conduct it. Your Modern Slavery Act statement must demonstrate the actions taken, not just the policy commitments made.
Red Flags to Watch For
During factory visits, observe: workers who appear frightened or defer to management, identity documents retained by employer, workers recruited through third-party agents who charge recruitment fees, wages below legal minimums, excessive overtime or inability to refuse overtime, workers unable to leave facility freely during non-working hours, lack of employment contracts or contracts in unfamiliar language, physical safety hazards or overcrowded dormitories, and security personnel controlling worker movement.
If indicators are observed: stop engagement pending investigation, document observations, report to compliance team, and consider notification to authorities. Do not proceed with orders from facilities where modern slavery indicators are present.
Modern Slavery Risk in Specific Sourcing Categories
Electronics and components: Multi-tier supply chains with contract labour in assembly. Due diligence must verify component suppliers at two tiers below your direct supplier and focus on 3TG minerals sourcing (tin, tantalum, tungsten, gold).
Textiles and apparel: Labour-intensive production with extensive subcontracting and migrant worker vulnerability. Focus on wages, working hours, freedom of movement, and dye and chemical safety certifications.
Furniture: Manual assembly with wood sourcing that may have forced labour associations, plus chemical exposure risks. Verify wood sourcing through FSC or PEFC chain-of-custody certifications.
Machinery and industrial equipment: Generally lower direct labour risk, but casting, forging, and surface treatment sub-suppliers may carry elevated risk. Focus audit scope on these sub-supplier categories.
Frequently Asked Questions
Does the Modern Slavery Act apply to my business?
The Act applies to entities with AUD 100M+ annual revenue. Below-threshold businesses may face pressure from supply chain partners requesting compliance documentation, or liability for knowingly profiting from modern slavery. All Australian businesses benefit from understanding the due diligence framework even if not legally required to comply.
What is the difference between modern slavery and poor working conditions?
Modern slavery specifically involves coercive control: forced labour, debt bondage, or human trafficking. Poor conditions are a risk factor but do not necessarily constitute modern slavery. Both require attention, but the indicators and responses differ.
How do I know if my Chinese supplier uses forced labour?
Direct indicators: workers unable to leave freely, confiscated identity documents, debt bondage arrangements. Indirect indicators: unusually low wages, excessive overtime, lack of contracts, fearful workers. On-ground verification is the only reliable detection method.
What should I do if I discover modern slavery at a supplier?
Stop engagement immediately. Document findings. Report to compliance and legal team. Consider notification to Australian Federal Police or Fair Work Ombudsman. Terminate the supplier relationship. Review purchasing practices that may create exploitation-enabling conditions.
How often should I audit China suppliers?
High-risk: minimum annually. Medium-risk: every two years. Lower-risk: every three to five years or when circumstances change. Credible allegations trigger immediate investigation regardless of schedule.
Can I rely on my supplier's own audit reports?
Supplier self-assessments are not sufficient for high-risk categories. Request audits from accredited third-party firms. For critical supply chains, conduct your own visits and interviews in addition to third-party reports.
How do I conduct worker interviews?
Conduct in a private setting away from management. Use a bilingual interpreter not affiliated with the supplier. Ask open-ended questions about recruitment, wages, hours, and freedom of movement. Observe body language. Note reluctance or inconsistencies. Do not ask leading questions.
Winning Adventure Global provides on-the-ground verification of Chinese suppliers for Australian businesses. Their China-based team conducts factory visits, worker interviews, and supplier assessments beyond document review. They help clients build compliance frameworks that satisfy the Modern Slavery Act and protect supply chains.