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 the era of Chinese leader Xi Jinping.
Eric Zheng, the president of the US Chamber of Commerce, said on Tuesday he was concerned about reports that due diligence firms have been targeted by authorities because their work is “essential to doing business in China.”
Chinese authorities should “delineate more clearly 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 comments follow a similar warning from the US business group last month that China’s recent expansion of its espionage law “drastically increases the uncertainties and risks of doing business in the People’s Republic”.
The EU ambassador to China, Jorge Toledo Albinana, said on Tuesday that the legislation was “not good news” for those hoping for further opening of China’s economy.
The European Chamber of Commerce said in a statement that Beijing’s action “sends a very mixed signal” as China seeks to restore business confidence after the abrupt end of its strict “zero COVID” strategy in December.
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 foreign companies.
In a lengthy news report on Monday, CCTV said unspecified Western countries had committed “rampant theft” of intelligence in critical industries related to China’s military and economy and accused “overseas institutions” of using consulting 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 company was sentenced to six years in prison on espionage charges related to their work for the consulting firm.
The investigation comes after Chinese law enforcement questioned staff at US-based consulting giant Bain & Company last month and raided the Beijing office of US due diligence firm Mintz Group in March and detained five employees.
Capvision, Bain and Mintz all collect information and data about Chinese companies for clients such as investment banks, hedge funds and private companies that may invest in or do business in China.
Beijing has signaled a growing mistrust of foreign institutions in recent months, reflected in the expansion of the country’s anti-espionage law to include all “documents, data, materials and items related to national security and interests”.
While the amended law won’t take effect until July, it has already sent chills to foreign companies, which have reported losing access to company registries containing valuable information about Chinese companies.
While the recent investigations only directly affect a handful of foreign companies operating in China, the lack of transparency surrounding the probes has sparked concern throughout foreign business, said Nick Marro, a world trade and China analyst at the Economist. Intelligence Unit.
“We understand and agree that the Chinese authorities should punish law violations when they occur. But given that a lot of this activity happens with a high degree of opacity, and not many people know what’s going on,” Marro told Al Jazeera.
“We work based on rumours, not facts. And that uncertainty really undermines the efforts of the Chinese government to really restore that confidence.”
Chinese Premier Li Qiang said in March there would be “a lot of room” for international companies to operate in China and for foreign professionals to return after the removal of pandemic curbs and border controls.
China’s economy grew just 3 percent last year amid widespread lockdowns and travel restrictions, but gross domestic product is so far on track to meet a 5 percent growth target this year.
Wang Wenbin, spokesman for China’s foreign ministry, said on Tuesday that authorities were carrying out “normal law enforcement measures” with the aim of ensuring the “healthy development of the industry and the protection of national security and development interests”.
Observers have also noted that the recent crackdown has focused on US companies at a time of heightened tensions between the US and China.
Some 87 percent of respondents to an AmCham survey in April said they were pessimistic about bilateral relations, while 59 percent were positive about China’s economic recovery.
A foreign businessman who works at a medium-sized consulting firm in China said most of his colleagues were less concerned about the national security raids than they were 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 about the government in China and what they are going to do next,” the person told Al Jazeera on condition of anonymity.
“There is a lot of hesitation to go to China – not because of concerns about espionage, but because last year during the lockdown there was harsh pressure on high-earners in China and concerns about the impact of the common prosperity campaign on the wealthy. and successful companies.”
“From our perspective, that puts your IP at risk in China and that’s different from the recent news about companies doing due diligence on Chinese companies and selling the information to Wall Street firms,” the businessman added.