China Prioritizes National Security over Business, Making Things Difficult

In late March, Chinese officials entertained global business executives in Beijing, assuring them that they were considered “family, not foreign visitors” and committing to reducing bureaucratic red tape. However, recent months have seen China restrict foreign access to data and announce raids on consulting firms. Amendments to the Anti-Espionage Law, which will take effect on July 1st, will widen the definition of espionage and prohibit information transfer concerning national security. This has left both domestic and foreign companies struggling to understand what is prohibited and anxious about unintentionally crossing the line.

US due diligence firm Mintz Group reported that its Beijing office was shut down by police, and Bain & Company announced that employees in its Shanghai office were being questioned. State television coverage of a raid on global expert network Capvision was viewed by many analysts as a warning to the United States. A number of experts believed that while these three companies were the targets of isolated incidents, they were not signs of an arbitrary campaign to target foreign companies.

The full effect of the revised Anti-Espionage Act is not yet clear. While some analysts believe that the scope of the original act was so broad that the impact of the widened definition may not be significant, others predict a “chilling effect,” which could lead to companies being more cautious in their information collection and targeting.

The cacophony between recent events in China and the government’s efforts to attract foreign investment amidst the coronavirus pandemic has fuelled fears. However, journalist and author Lingling Wei notes that the authorities do not appear to see a contradiction between maintaining pressure on foreign companies and preventing foreign capital from leaving China. They believe that China’s market is simply too large for businesses to leave.

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