China’s foreign companies on edge after ‘state secrets’ raids | Business and Economy

Taipei, Taiwan – Foreign companies in China are on tenterhooks following a series of national security raids on consultancy firms that have highlighted the risks of doing business in the era of Chinese leader Xi Jinping.

Eric Zheng, the president of the American Chamber of Commerce, said on Tuesday he was concerned about reports that due diligence firms had been targeted by authorities as their work is “essential to doing business in China.”

Chinese authorities should “more clearly describe the areas in which companies can or cannot conduct such due diligence,” Zheng said in a statement.

“This would give foreign companies more confidence and enable them to comply with Chinese regulations.”

Zheng’s remarks follow a similar warning by the US business group last month that China’s recent expansion of its espionage law “dramatically increases uncertainties and risks of doing business in the People’s Republic.”

The EU Ambassador to China Jorge Toledo Albinana on Tuesday said the legislation was “not good news” for those hoping to see a further opening of the Chinese economy.

The EU Chamber of Commerce said in a statement Beijing’s crackdowns “send a very mixed signal” as China seeks to restore business confidence following the abrupt end of its strict “zero COVID” strategy in December.

China’s CCTV has accused foreign consulting firms of leaking state secrets to bodies overseas [File: David Gray/Reuters]

Chinese state media said on Monday that authorities had 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 critical intelligence with overseas firms.

In a lengthy news report on Monday, CCTV said unspecified Western countries had carried out “rampant theft” of intelligence in critical industries related to China’s military and economy and accused “overseas institutions” of using consultancy firms to collect sensitive information.

The report accused Capvision of pressuring local experts to reveal company or state secrets on behalf of unknown clients, and said a senior researcher at a state-owned enterprise was sentenced to six years in prison on espionage charges related to their work for the consulting company.

The probe came after Chinese law enforcement last month questioned staff of US consulting giant Bain & Company, and in March raided the Beijing office of New York-based due diligence firm Mintz Group and detained five employees.

Capvision, Bain and Mintz, all of which are US-based, source information and data on Chinese firms for clients such as investment banks, hedge funds, and private companies that may invest in China or do business there.

Beijing has signaled a growing distrust of foreign institutions in recent months, expanding the country’s anti-spying law in April to encompass all “documents, data, materials, and items related to national security and interests.”

While the amended legislation does not come into effect until July, it has already sent a chill through foreign businesses, which have reportedly been cut off from access to corporate registries containing valuable information about Chinese companies.

While the recent investigations only directly affected a handful of foreign firms operating in China, the lack of transparency around the probes has sparked anxiety throughout the foreign business community, said Nick Marro, a global trade and China analyst at the Economist Intelligence Unit.

“We understand and are on board with the fact that Chinese authorities need to punish law-breaking when it occurs. However, given that a lot of these activities are occurring with a high degree of opacity, and not a lot of people know what’s going on, we’re operating based on rumors, rather than facts,” Marro told Al Jazeera. “And that uncertainty really undermines the efforts by the Chinese government to really restore that confidence.”

The American Chamber of Commerce in China has expressed concerns about Beijing’s crackdown on foreign consulting firms [File: Jason Lee/Reuters]

Chinese Premier Li Qiang said in March there would be “broad space” for international companies to operate in China and foreign professionals to return after the scrapping of pandemic curbs and border controls.

China’s economy last year grew just 3 percent amid widespread lockdowns and travel restrictions, but gross domestic product is so far on track to hit Beijing’s target of around 5 percent growth for this year.

Chinese Foreign Ministry spokesperson Wang Wenbin said on Tuesday that authorities were carrying out “normal law enforcement action” aimed at ensuring the “sound development of the industry and safeguarding national security and development interests.”

The crackdown’s focus on American companies in particular comes amid strained relations between the US and China, which are locked in a heated competition for geopolitical power and influence.

Some 87 percent of respondents to an AmCham survey in April said they were pessimistic about bilateral relations, even as 59 percent reported a positive outlook on China’s economic recovery.

One foreign businessman working at a mid-size consulting firm in China said most of his colleagues were less concerned about the national security raids than about the speed and shape of China’s recovery from “zero COVID” and the burdensome regulation of private industry.

“I think people are very concerned with the government in China and what are they going to do next,” the person told Al Jazeera on condition of anonymity.

“There’s a lot of hesitation about going to China – not because of spying concerns but because last year during lockdown there was this hard press on people who make a lot of money in China and concerns about how the common prosperity campaign was going to affect the wealthy and successful corporations.”

“From our perspective that puts your IP in China at risk and that’s different from the recent news about companies that do due diligence on Chinese companies and sell the information to Wall Street firms,” the businessman added.