海角大神

China鈥檚 recent raids on American firms and the expansion of a counterespionage law are sending a chill through the foreign business community and ratcheting up the risks of operating in the country.

By targeting two U.S. companies involved in due diligence work 鈥� such as background checks and market consulting 鈥� in separate raids in March and April, while also greatly widening the scope of data that could be deemed by Chinese authorities to be related to national security, Beijing has thrown into question whether businesses and other entities can safely gather information vital to their work.聽

鈥淔rankly, we鈥檙e very concerned about it,鈥� said Nicholas Burns, the U.S. Ambassador to China, at an online event on Tuesday hosted by the Stimson Center in Washington. The amendments approved last week to China鈥檚 counterespionage law 鈥渃ould potentially make illegal in China the kind of mundane activities that a business would have to do.鈥�

The moves place a bigger black box around critical, trust-building data at a moment when Beijing is declaring the country open for business after three years of strict 鈥渮ero-COVID鈥� policy. U.S. business representatives in China say the mixed signals coming from the government have contributed to a cautiousness among American firms here.

鈥淥n the one hand, there have been events to communicate with foreign firms and encourage investment. On the other, these company raids with no clarity have spooked the foreign business community in China,鈥� writes Michael Hart, president of the American Chamber of Commerce in China (AmCham), in emailed responses to questions.

An April survey of AmCham members showed that while the majority of respondents were optimistic about China鈥檚 economic recovery, less than a quarter planned to increase investment. Nearly a quarter were considering relocating supply chains outside of China, mainly to better manage risk.聽

Company leaders visiting China for the first time in years 鈥渃ertainly have raised questions about recent raids, detentions, and arrests,鈥� Mr. Hart says. 鈥淚f these companies have done something illegal, we encourage the authorities to be clear about what that is. Otherwise all foreign companies may feel they are a target of a politically motivated action.鈥�

Heightened scrutiny

American business leaders and senior U.S. officials say they are raising concerns with Beijing about the raids on the Mintz Group and Bain & Company as well as the sweeping counterespionage rules, which together are exacerbating an already challenging environment for foreign firms.

In the context of the law, which 鈥渃asts a wide net鈥� over data considered relevant to national security, the 鈥渉eightened official scrutiny鈥� of U.S. due diligence firms 鈥渄ramatically increases the uncertainties and risks of doing business in the People鈥檚 Republic,鈥� the U.S. Chamber of Commerce said in a statement. 鈥淭his is a matter of serious concern for the investor community.鈥�

Under the expanded law, Chinese authorities conducting counterespionage investigations can impose 鈥渆xit bans鈥� on Chinese and foreign suspects, blocking them from leaving the country. China鈥檚 use of such exit bans is growing, according to a report released on Tuesday by Safeguard Defenders, a human rights group based in Madrid. It cited an academic paper that found that at least 41 foreign businesspeople had been subject to exit bans by China over the past two decades. China鈥檚 use of exit bans is listed in the U.S. State Department鈥檚 March 2023 travel advisory as one reason Americans should 鈥渞econsider鈥� travel to China.

Ambassador Burns stressed that U.S. officials are raising questions about the law with China鈥檚 government in hopes of ensuring 鈥渁n environment here where American businesspeople and journalists and academics can feel safe, that if they鈥檙e operating here in China, they can do the jobs that they came here to do, and they are not subject to this kind of intimidation.鈥�

Security roles for all

China鈥檚 prioritization of national security over economic growth, as the country faces a mounting geopolitical rivalry with the United States, is the driving force behind Beijing鈥檚 actions to assert greater control over flows of information and people, experts say.

China鈥檚 leader Xi Jinping stressed the need to strengthen national security 鈥� calling it the 鈥渂edrock鈥� of the country鈥檚 development and the 鈥渦ltimate goal鈥� 鈥� at the Communist Party鈥檚 20th National Congress last October, when he won a rare third term as head of the ruling party.

Mr. Xi called for shoring up the security of China鈥檚 food, energy, resources, and key industrial supply chains, and for bolstering the protection of the country鈥檚 infrastructure, financial system, and data, as well as cybersecurity.

鈥淎fter the Party Congress, the leadership seems intent on reorienting the government priorities toward this geopolitical competition with the U.S., and the overriding economic priority is to build up the economy so it can survive and prosper and prevail in that competition,鈥� says Andrew Batson, China research director for Gavekal Dragonomics, which covers macroeconomic and market trends in China.

鈥淚t鈥檚 a general effort to harden the economy against external shocks 鈥� based on a recognition that China is operating in what they view as a more uncertain and hostile world,鈥� Mr. Batson says.

Indeed, China鈥檚 focus on national security has led to a steady expansion of laws 鈥� including the 2014 Counter Espionage Law, the 2015 National Security Law, the 2016 Cybersecurity Law, and the 2017 National Intelligence Law 鈥� which obligate firms and individuals to support government security efforts.

鈥淭here has been a slew of new legislation that effectively securitizes firms,鈥� says Kellee Tsai, dean of the School of Humanities and Social Science at the Hong Kong University of Science and Technology (HKUST). 鈥淭hese laws explicitly ascribe national security roles to Chinese firms.鈥�

As China鈥檚 companies play a bigger role in security, scrutiny of multinationals and foreign firms operating in China has increased as well. They are also under growing pressure to toe the political line in China, Dr. Tsai says.

鈥淚n the past five years, firms have been under increasing pressure to demonstrate political fealty, and this expectation of political correctness extends to multinationals operating in China,鈥� says Dr. Tsai, who is also Chair Professor of Social Science at HKUST.

This contrasts sharply with China鈥檚 recent business-friendly messaging 鈥� including by Li Qiang, the new prime minister 鈥� that China seeks to attract foreign investment and will expand market access.聽

鈥淭hat is true in a short-term, tactical sense,鈥� says Mr. Batson. 鈥淏ut not in a long-term, strategic sense.鈥�