The recent raids by Chinese security forces on US consulting firms in China strike at the heart of the West’s ties to 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 major constituency in Western nations for continued engagement with China in the face of intensifying domestic political opposition. Therefore, it is no exaggeration to say that the future of economic globalization is at risk.
The multiple raids of recent weeks on US companies Capvision, Bain & Company AND Mintz – all of which have sizable operations in China – signal a sea change in Beijing’s attitude towards US affairs. Yet what makes the environment particularly poisonous is the nature of the allegations made by the Chinese authorities. Chinese media reported that the advisory groups had exploited personnel in “our party and government bodies and other clandestine units” to supply sensitive information to overseas clients.
CCTV, China’s state broadcaster, said in a report focusing mainly on Capvision that the group had arranged interviews with experts in areas such as government policy, national defense and technology. He said some of these had revealed sensitive and secret information during the consultations.
These allegations come against the backdrop of Beijing’s heightened vigilance against espionage. Last month, anti-espionage laws were broadened from covering state secrets and intelligence to any “document, data, material or item relating to national security and interests,” without establishing specific parameters for defining these terms. . This effectively means that anything the Communist Party of China deems suspicious can be defined as potential espionage, triggering the authorities’ search and seizure powers as well as the imprisonment of individuals.
Beijing has also shown a willingness to act. The 2018 detention of Michael Spavor and Michael Kovrig – Canadian executives jailed for more than 1,000 days and accused of espionage – raised fears among Western business communities in China.
The US Chamber of Commerce warned last month that growing scrutiny by American companies had “dramatically” increased risk premiums associated with 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 control over US professional services and due diligence firms.
Beijing may feel that as its domestic companies climb the tech ladder and expand overseas, it no longer needs the investment of the Western multinationals it once so assiduously courted. Certainly, the ability of Chinese automakers to do so win the market share of Western rivals such as Volkswagen seems to reinforce that view.
Yet much more is at stake. More than a third of the $3.3 trillion of goods China exported in 2021 were supplied by foreign companies operating on the continent. Multinationals have also been a primary source of technology transferred to local partners over the past four decades, as well as management expertise and advice on how to enter US and European markets.
It would therefore be in its own interest for Beijing to act to allay the concerns of foreign investors. He should define more clearly what constitutes espionage and what is seen as legitimate industrial intelligence. Otherwise, the result might be a fundamental violation between China and the multinationals that have long been its biggest proponents in the West.
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