Recent raids by Chinese security forces on US consultancies in China strike right at the heart of the west’s ties with the world’s second-largest economy. Such consultancies provide essential market research and due diligence work to western multinationals that have invested hundreds of billions of US dollars in China over the past decade. It is these multinationals, in turn, that form the leading constituency in western nations for continued engagement with China in the face of intensifying domestic political opposition. Thus, it is little exaggeration to say the future of economic globalisation is at risk.
The multiple raids in recent weeks on US companies Capvision, Bain & Company and Mintz — all of which have considerable operations in China — signal a sea change in Beijing’s attitudes to US business. Yet what makes the environment particularly poisonous is the nature of the allegations being levelled by Chinese authorities. Chinese media reported that consulting groups had tapped personnel in “our party and government organs and other clandestine units” to provide sensitive information to clients abroad.
CCTV, the Chinese state broadcaster, said in a report focused primarily on Capvision that the group had set up interviews with experts in areas such as government policy, national defence and technology. It claimed a few of these had revealed sensitive and secret information during the consultations.
Such allegations come against a backdrop of Beijing’s increased vigilance against espionage. Anti-espionage laws were broadened last month from covering state secrets and intelligence to any “documents, data, materials or items related to national security and interests”, without setting specific parameters for how these terms are defined. This means, in effect, that anything the Chinese Communist party deems suspect can be defined as potential espionage, triggering the search and seizure powers of authorities as well as the incarceration of individuals.
Beijing has also displayed a willingness to act. The detention in 2018 of Michael Spavor and Michael Kovrig — Canadian executives imprisoned for more than 1,000 days and charged with spying — sent fear through western business communities in China.
The US Chamber of Commerce warned last month that mounting scrutiny of American companies had “dramatically” raised the risk premia attached to doing business in China. The powerful US business lobby group, led by chief executive Suzanne Clark, said in a statement it was “closely monitoring” China’s scrutiny of US professional services and due diligence firms.
It may be that Beijing feels that as its homegrown companies climb the technology ladder and expand overseas, it no longer needs the investment of western multinationals it once courted so assiduously. Certainly, the ability of Chinese car companies to win market share from western rivals such as Volkswagen seems to reinforce such a view.
Yet much more is at stake. More than one-third of the $3.3tn in goods that China exported in 2021 were supplied by foreign companies operating in the mainland. Multinationals have also been a prime source of technology transferred to local partners over the past four decades, as well as management expertise and advice on how to break into US and European markets.
It would be in its own self-interest, then, for Beijing to act to assuage foreign investors’ concerns. It ought to define more clearly what constitutes espionage and what is seen as legitimate industry intelligence. If not, the result could be a fundamental breach between China and the multinationals that have long been its biggest supporters in the west.
Source: Economy - ft.com
