‘The full treatment’: Beijing sends message with Capvision raid

With a prime-time broadcast of a phalanx of officers storming an office in Shanghai and questioning consultants this week, Beijing has sent a clear message: be careful not to share information with foreigners.

State television’s 15-minute report on a national security investigation into expert networking group Capvision is the latest chilling signal for foreign consultants and firms in China.

Billed by state media as part of a nationally coordinated campaign to clean up the consulting sector in the world’s second-largest economy, it follows other raids in recent weeks on US blue-chip company Bain & Company and due diligence group Mintz.

The campaign is making it harder than ever for foreign investors to gather even basic information about potential Chinese acquisitions, partners or suppliers. This is at least partly expected as Beijing is also methodically reducing foreign access to once openly accessible public data such as academic theses and corporate-owned documents.

The crackdown comes despite a offensive charm by Li Qiang, China’s second-largest leader after President Xi Jinping, to persuade foreign and private investors to return to the country after pandemic controls squeezed growth last year.

“He’s sending the creeps out of everything [foreign business] community,” said Ker Gibbs, former president of the American Chamber of Commerce in Shanghai. “Lawyers and due diligence people are like swamp guides. If you don’t have a swamp guide, you won’t enter the swamp.”

The authorities have so far kept their mouths shut on the raids on foreign consultancies, sometimes abruptly acknowledging them but providing few details.

So the CCTV special report produced Monday night showing police cars driving down a business park and squads of officers peering into Capvision’s offices and questioning nervous employees, seemed designed to send a strong message, analysts said .

Headquartered in Shanghai and New York, Capvision specializes in connecting international investors and management consultants, such as those at Bain and McKinsey, with its network of 450,000 subject matter specialists. More than 500 of the company’s 700 employees, which was founded in 2006, are based in the mainland, according to public records.

The CCTV report focused on two cases of specialists hired by Capvision who allegedly shared sensitive and secret information with foreign audiences. Neither seemed to be recent.

A man surnamed Han who worked at a state-owned enterprise was accused of sharing more than two dozen national and corporate secrets with Capvision’s overseas clients. A mugshot in the video appeared to show that he was arrested by China’s Ministry of State Security in 2020.

Another man surnamed Lei, who worked for a defense contractor, was similarly accused of leaking sensitive military information to a Capvision client in 2020.

“This is a normal law enforcement action,” China’s foreign affairs ministry said on Tuesday. The goal was to promote the “healthy development” of the industry and “safeguard China’s security and development interests.”

Capvision employees in its Beijing office on Tuesday did not comment on the matter, while the group previously pledged to “decisively implement national security development” on Chinese social media.

But Bob Guterma, a former Capvision executive, said the revelations were surprising given the group’s long track record of dealing with laws and the pitfalls associated with its business.

Guterma was hired as Capvision’s inaugural chief compliance officer in 2012 to institute a rigorous program aimed at wooing more overseas clients. The main focus was insider trading, but the program also took into account more China-specific risks, such as the handling of state secrets.

Contacts with the police and regulatory agencies were frequent and cordial during his tenure with the group, which ended in 2015. Legal context unclear.

“Capvision has been doing what it’s been doing for a long time and not secretly: They knew their business model flies very close to no-fly zones,” said Guterma, who now leads the independent news show The China Project.

Because of this, he said, the CCTV report was more about issuing a warning to the public about providing information to foreigners. Normally, irregularities would be handled administratively by the authorities and not aired on state television.

“With the CCTV special, that’s the full treatment. . . this is meant to send a big message,” she said.

The crackdown on expert networks comes as China cut off foreign access to data ranging from shipping transponders that transmit real-time global supply chain information, to public databases.

Last month, the country’s largest academic database CNKI, home to university theses, dissertations and other academic documents, began blocking foreign access. Private and government-run databases of Chinese corporate information, patent information, court records, and tenders have also been shut down.

“They’re obviously trying to scare everyone and send a message,” said a former due diligence professional.

A US fund manager said his firm was focusing on consumer stocks, which appeared to have fewer national security complications, but even then it still needed expert networks for non-public information, such as profit margins. of specific business units or information about private competitors.

“I am concerned about the safety of my Chinese staff,” the fund manager said. “We don’t know where the bottom line is. What is a safe topic today can become delicate tomorrow”.

The contradiction between China’s efforts to persuade foreign investors and Beijing’s crackdown on information may be due to the overzealous implementation by lower authorities of the instructions of China’s top leadership, which said that “development and security must go hand in hand,” said Li Mingjiang, a professor at Nanyang Technological University in Singapore.

“A lot happens in the Chinese system, not just on this particular issue. Whenever the top leaders, the top leader says something, the bureaucrats tend to go overboard,” he said.

For now, however, the system seems oblivious to any overflow. A state security official in a separate television special about the raids, his face blurred to hide his identity, warned that the crackdown would continue.

The security services “will step up law enforcement against activities that endanger national security, such as counseling in violation of laws and regulations,” he said.

Additional reporting by Kaye Wiggins and Primrose Riordan in Hong Kong and Sun Yu and Nian Liu in Beijing