Taipei, Taiwan – Foreign companies in China are on edge after a series of national security raids on consulting firms that have highlighted the risks of doing business in Chinese leader Xi Jinping’s era.
Eric Zheng, president of the US Chamber of Commerce, said Tuesday he was concerned by reports that due diligence firms have been targeted by authorities because their work is “essential to doing business in China.”
Chinese authorities should “more clearly delineate the areas where companies can or cannot conduct such due diligence,” Zheng said in a statement.
“That would give foreign companies more confidence and allow them to comply with Chinese regulations.”
Zheng’s comments follow a similar warning by the US corporate group last month that China’s recent expansion of its espionage law “dramatically increases the uncertainties and risks of doing business in the People’s Republic.”
EU Ambassador to China Jorge Toledo Albinana said on Tuesday the legislation was “not good news” for those hoping for further opening up of the Chinese economy.
The EU Chamber of Commerce said in a statement Beijing’s raids “send a very mixed signal” as China seeks to restore business confidence after abruptly ending its strict “zero-COVID” strategy in December.
China’s CCTV has accused foreign consulting firms of leaking state secrets to entities abroad [File: David Gray/Reuters]Chinese state media said Monday that authorities have launched an investigation into Capvision, a consulting firm with offices in New York, Shanghai, Beijing, Suzhou and Shenzhen, for offering to share state secrets and vital information with overseas firms.
In a lengthy news report on Monday, CCTV said unspecified Western countries had carried out “rampant theft” of intelligence information in critical industries related to China’s military and economy, and accused “overseas institutions” of using consulting firms to gather sensitive information.
The report accused Capvision of pressuring local experts into revealing company or state secrets on behalf of unknown clients and said a senior researcher at a state-owned company had been sentenced to six years in prison on espionage charges related to his work for the consultancy.
The investigation comes after Chinese law enforcement interrogated employees of US consulting giant Bain & Company last month and raided the Beijing office of New York-based due diligence firm Mintz Group in March and arrested five employees.
Capvision, Bain and Mintz, all based in the US, provide information and data on Chinese companies for clients such as investment banks, hedge funds and private companies that may invest or do business in China.
Beijing has signaled growing distrust of foreign institutions in recent months, extending the country’s anti-espionage law to include all “documents, data, materials and items related to national security and interests” in April.
Though the amended law won’t come into force until July, it has already sent a shiver to foreign companies, which have reported being denied access to business registers containing valuable information about Chinese companies.
While the latest investigations directly affect only a handful of foreign firms operating in China, the lack of transparency around the investigations has raised concern across the foreign business community, said Nick Marro, global trade and China analyst at The Economist intelligence unit.
“We understand and agree that the Chinese authorities must punish violations of the law when they occur. However, given that a lot of this activity takes place with a high degree of opacity and not many people know what is going on, we operate on the basis of rumor rather than fact,” Marro told Al Jazeera. “And this uncertainty is really undermining the Chinese government’s efforts to really restore that confidence.”
The American Chamber of Commerce in China has raised concerns about Beijing’s crackdown on foreign consulting firms [File: Jason Lee/Reuters]Chinese Premier Li Qiang said in March there will be “wide space” for international companies to operate in China and for foreign professionals to return after pandemic restrictions and border controls are lifted.
China’s economy grew just 3 percent last year amid widespread lockdowns and travel restrictions, but gross domestic product so far is on track to meet Beijing’s target of around 5 percent growth for this year.
Chinese Foreign Ministry spokesman Wang Wenbin said Tuesday that authorities are carrying out “normal law enforcement measures” to ensure the “sound development of industry and the protection of national security and development interests.”
The focus of the crackdown on American companies lies primarily in the strained relationship between the US and China, which is embroiled in a heated competition for geopolitical power and influence.
About 87 percent of respondents to an April AmCham poll said they were pessimistic about the bilateral relationship, although 59 percent gave a positive outlook on China’s economic recovery.
A foreign businessman who works at a mid-sized consulting firm in China said most of his colleagues are less concerned about the national security crackdowns than the speed and shape of China’s recovery from “zero-COVID” and onerous regulation of private industry.
“I think people are very concerned about the government in China and what they are going to do next,” the person told Al Jazeera on condition of anonymity.
“There are a lot of concerns about going to China – not because of espionage concerns, but because there was this harsh pressure on people who make big money in China during last year’s lockdown and concerns about how the collective prosperity campaign is affecting the rich dignity and successful businesses.”
“In our view, this puts your intellectual property at risk in China, and this differs from recent news about companies conducting due diligence on Chinese companies and selling the information to Wall Street firms,” the businessman added.
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