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Crackdown on consulting firms in China worries foreign companies


Foreign business lobbies in China said on Tuesday they were angered by a sweeping crackdown on consultancy and due diligence firms that is undermining investor confidence in the world’s second-largest economy.

The European Union ambassador to China also expressed concern about what state media described as an “intensification” of law enforcement aimed at protecting national security and an expansion of legislation that criminalizes the transfer of information and data.

The crackdown “sends a worrying signal and increases the uncertainty felt by foreign companies operating in China,” the EU Chamber of Commerce in China said in a statement.

“The developments are not conducive to restoring business confidence and attracting foreign investment.”

Eric Zheng, president of the American Chamber of Commerce in Shanghai, also expressed concern about the crackdown, while calling on authorities to “delineate more clearly” the areas of permitted due diligence.

“Without proper due diligence, foreign companies will not be able to invest in new projects in China,” he said.

Foreign Ministry spokesman Wang Wenbin said authorities had “brought control” of affected companies, while aiming to “promote and normalize the healthy development of the relevant (consulting) industry”. China says it welcomes foreign investment as long as companies abide by its laws.

The scrutiny of consulting firms, including Capvision Partners, which state media say aims to prevent the theft of state secrets, including defense and technology, is the latest step in a campaign to several years aimed at strengthening the control of information.

“This … is part of a broader trend of China’s tightening grip on sensitive information, especially in light of the ongoing tensions between China and the United States,” said Ani Chaudhuri, CEO of the Dasera data security platform.

“The crackdown on consulting firms can be interpreted as a warning to foreign companies operating in China, underscoring the need for companies to reassess their data handling practices and security measures.”

On Monday evening, state broadcaster CCTV aired a 15-minute report on Capvision, claiming it had accepted projects from foreign companies to obtain information, including “state secrets and intelligence” on sectors sensitive, including defense and cutting-edge technologies.

“Some of these companies have close relationships with foreign governments, military and intelligence agencies,” CCTV said.

From 2017 to 2020, Capvision accepted more than 2,000 remittances worth $70 million from hundreds of overseas companies, CCTV added as it released footage of Capvision offices and companies. interviews with state security officials.

An expert hired by the company was jailed for six years for “theft, espionage and providing secret state intelligence abroad”, CCTV said.

Capvision said in a statement shortly after the broadcast that it would abide by national security rules steadfastly. Staff declined interview requests when contacted by Reuters on Tuesday.

The CCTV report was the first clear indication of the national security implications of recent police action against several consulting firms.

In March, the Beijing office of US law firm Mintz was raided and five Chinese staff members were arrested. Police visited the Shanghai office of US management consultancy Bain & Co last month.

Further scrutiny is expected, state media said.

“The state security organ and other authorities will intensify law enforcement against activities that endanger national security, such as illegal viewing,” said the Global Times, owned by the State.

Some observers said the review was a retaliation for US attempts to stifle Chinese access to advanced technologies, including semiconductors, which have seen a series of sanctions imposed on Chinese companies and entities.

“This is a concrete action taken by the Chinese government to step up the fight against US technological containment,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing.

There are particular fears that changes to the anti-espionage law from July 1 could ensnare more businesses.

Jorge Toledo Albinana, the EU’s ambassador to China, earlier on Tuesday expressed concern over the toughened law, saying it was “not very conducive” to China’s goal of opening up to more companies abroad.

The reviews will see all documents, data, materials and items “related to security and national interests” given the same protection as state secrets. The law does not define China’s national security or interests.

“Virtually any information could be considered a threat to China’s national security,” said Drew Thompson, visiting senior fellow at the Lee Kuan Yew School of Public Policy, adding that officials had “wide latitude” to apply the law.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.