China Tightens Control Over Foreign Companies Amid Anti-Corruption Investigations
As China’s President Xi Jinping seeks to tighten control over the economy, foreign companies are increasingly facing pressure over anti-corruption and security investigations. This move to clamp down on businesses is clashing with efforts to attract investors after the pandemic. The actions being taken by the Chinese government run counter to the ruling Communist Party’s attempts to revive investor interest in China despite increased political control over the economy. As a result, global businesses are shifting their investment plans to Southeast Asia, India and other economies, a move which is putting China’s business confidence at risk.
Bain & Co., a global management consulting firm, said this week that Chinese police had questioned staff at its Shanghai office, but did not give details of what they were looking for. Corporate due diligence firm Mintz Group also reported last month that its Beijing office was raided and five employees were detained. Furthermore, a Japanese pharmaceutical employee was detained on espionage charges, and the Chinese government announced a security review of memory chip maker Micron Inc.
China’s Tightening Grip
The actions taken against foreign companies in China come at a time when China’s relations with Washington, Europe, and Tokyo are under strain due to disputes over human rights, Taiwan, security and technology. The ruling party is tightening legal restrictions on access to information about companies and their employees. This has increased uncertainty for law or consulting firms that help their clients detect fraud or other misconduct by business partners or acquisition targets.
The Chinese government is also expanding the scope of its espionage law, giving authorities more powers to access electronic information. The law covers all “documents, data, materials and items related to national security,” according to the official Xinhua news agency, though it did not specify how national security is defined.
Foreign companies have long advised their employees visiting China not to bring computers or mobile phones with sensitive information, as they could be confiscated by authorities or stolen by industrial spies. Japan’s Foreign Minister, Yoshimasa Hayashi, recently protested during his visit to Beijing about the detention of an employee of the Japanese drugmaker Astellas Pharma Inc. on suspicions of espionage.
The ruling party has also tightened its grip on Chinese private sector success stories, including e-commerce giant Alibaba Group and ride-sharing service Didi Global Inc., launching antitrust and data security investigations. Earlier this year, Didi Global moved its share listing from the New York Stock Exchange to Hong Kong. The company was fined 8 billion yuan ($1.2 billion) the following month on charges of mishandling customer information.
The crackdown on foreign companies and the increased political control over the economy paints a jarring backdrop for official efforts to reverse declining interest by foreign companies in China. The ruling party wants foreign companies in electric cars and other fields to bring technology, challenging Chinese companies to improve. However, business groups previously said that global companies were shifting investment plans to Southeast Asia, India, and the United States due to the difficulty of visiting China, as well as higher costs and more cumbersome regulations.
“At a time when China is proactively trying to restore business confidence to attract foreign investment, the actions taken send a very mixed signal,” commented the European Union Chamber of Commerce in China in a statement made on Friday.
The recent investigations and tighter control over foreign companies in China show President Xi Jinping’s resolve to reduce reliance on foreign technology and expertise. However, this move is at odds with the ruling Communist Party’s efforts to revive investor interest in China. In addition, the tighter control paints a jarring backdrop for official efforts to reverse declining interest by foreign companies in China. While the government wants foreign companies to bring technology and provide competition to force Chinese companies to improve, global companies are shifting their investment plans to other economies. As per information from the source, it remains to be seen how China’s tightening grip on foreign companies will impact their relationship with the Chinese government.