With primetime broadcasts this week of officials storming offices and interrogating advisers in Shanghai, Beijing sent a clear message – be wary of sharing information with foreigners.
A 15-minute state television report on a national security probe into expert network group Capvision is the latest chilling signal for consultants and foreign businesses in China.
Billed by state media as part of a nationally coordinated campaign to clean up the consulting industry in the world’s second-largest economy, it follows other raids in recent weeks at blue-chip US firm Bain & Co and due diligence group Mintz.
The campaign makes it more difficult than ever for foreign investors to obtain basic information about potential acquisitions, Chinese partners or suppliers. That is at least partly by design as Beijing also systematically reduces foreign access to once openly accessible public data, such as academic theses and business ownership records.
The clampdown comes despite a charm offensive by Li Qiang, China’s second-ranking leader after President Xi Jinping, to lure foreign and private investors back into the country after restrictions on the coronavirus pandemic crushed growth last year.
“It is sending chills throughout [foreign business] community,” said Kerr Gibbs, former president of the American Chamber of Commerce in Shanghai. “Lawyers and due diligence people are like swamp guides. You don’t go to the swamp if you don’t have a swamp guide.”
Authorities have so far been tight-lipped about the raids on foreign consultancies, sometimes tacitly acknowledging them but providing few details.
So Monday evening’s slickly produced CCTV special report of police cars descending on a business park and teams of officers roaming Capvision’s offices and questioning nervous employees appears designed to send a strong message, analysts said.
With headquarters in Shanghai and New York, CapVision specializes in connecting people from international investors and management consultants, such as Bain and McKinsey, to its network of 450,000 subject matter experts. More than 500 of the company’s 700 employees, founded in 2006, are based on the mainland, according to public records.
The CCTV report includes two cases of Capvision-hired experts allegedly sharing sensitive and classified information with foreign audiences. Neither appears to be recent.
A man surnamed Han, who worked at the state-owned enterprise, was accused of sharing more than two dozen national and corporate secrets with Capvision’s foreign clients. The video showed a mugshot showing that he was detained by China’s Ministry of State Security in 2020.
Another man named Lei, who worked for a defense contractor, was similarly charged in 2020 with providing sensitive military information to a CapVision client.
“This is a normal law enforcement action,” China’s foreign ministry said on Tuesday. The aim was to promote the sector’s “sound development” and “protect China’s security and development interests”.
Capvision employees at its Beijing office would not comment on the matter on Tuesday, while the group had previously pledged to “resolutely implement the development of national security” on Chinese social media.
But former Capvision executive Bob Guterma said the revelations were surprising given the group’s long experience of dealing with legal and business difficulties.
Guterres was appointed as CapVision’s inaugural chief compliance officer in 2012 to tighten the program as it sought to attract more foreign clients. The primary focus was insider trading but the program also included more specific risks to China, such as handling state secrets.
Contact with the police and regulatory agencies during his time at the group, which ended in 2015, was frequent and amicable. “You would, of course, almost welcome it,” Guterres said, adding that communication with authorities helped navigate China. Unclear legal environment.
“Capvision has been doing what they’ve been doing for a very long time and not in secret — they knew their business model flew close to the no-fly zone,” said Guterrema, who now heads the independent news outlet The China Project.
For this reason, he argued, the CCTV report is more about sending a warning to the public about providing information to foreigners. In general, malpractices will be dealt with administratively by officials and not broadcast on state television.
“With the CCTV special, it’s a complete treat. . . This is intended to convey a larger message.”
The clampdown on specialist networks comes as China cuts off foreign access to data, from shipping transponders to real-time public databases of global supply chain information.
Last month, the country’s largest academic database CNKI, home to university theses, dissertations and other academic papers, began blocking foreign access. Private and government-run databases with Chinese corporate information, patent information, court records and procurement tenders have also been closed.
“They’re obviously trying to scare everyone and send a message,” said one former due diligence professional.
One US fund manager said his company is focusing on consumer stocks, which have fewer national security implications, but still need specialist networks for non-public information, such as the profit margins of specific business units. or information on private competitors. .
“I am concerned about the safety of my Chinese staff,” said the fund manager. “We don’t know where the bottom line is. What is a safe subject today may become a sensitive one tomorrow.”
Li Mingjiang said the contrast between China’s efforts to attract foreign investors and Beijing’s restrictions on information may be due to the overzealous implementation by lower authorities of China’s top leadership’s instructions, which state that “development and security must go hand in hand”, Li Mingjiang said. Mingjiang said. , a professor at Nanyang Technological University in Singapore.
“In the Chinese system it happens a lot, not just on this particular issue. Whenever the top leaders, the very top leaders say something, bureaucrats overdo it.”
However, for now, the system seems oblivious to any over-reach. In a separate television special on the raids, a state security official, his face blurred to hide his identity, warned that the crackdown would continue.
The security services will “intensify law enforcement against activities that threaten 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