EU decries China consultancy crackdown as foreign corporate unease grows

BEIJING/HONG KONG  -The European Union said on Tuesday a crackdown in China on consulting firms was “not good news”, as Chinese state media suggested authorities would intensify law enforcement action to safeguard national security.

The scrutiny of consulting firms comes as China is set to expand its counter-espionage law with a broader definition of spying that could criminalize the transfer of information and data.

Jorge Toledo Albinana, the EU ambassador to China, expressed his concern about recent Chinese investigations into consultancies that state media said were aimed at stopping the theft of state secrets and information in sensitive areas including defense and technology.

“The latest news on crackdowns on consultancies is not good news,” Albinana told reporters in Beijing.

Albinana said the beefed up cyber espionage law was “not very conducive” to China’s aim of opening up to more foreign investment.

China says it welcomes foreign investment as long as firms abide by its laws.

The scrutiny of consultancies, as well as restrictions on foreign access to Chinese information in recent months, such as to the financial data provider Wind Information Co, has led to anxiety in business circles.

https://business.inquirer.net/400063/china-should-set-clear-rules-for-due-diligence-sector-amid-probes-us-business-lobby

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

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

On Monday evening, state broadcaster CCTV aired a 15-minute report on consulting firm Capvision Partners, saying it had accepted projects from overseas companies to source information, including “state secrets and intelligence” on sensitive sectors including defense and advanced technology.

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

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

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

Capvision said in a statement soon after the broadcast that it would resolutely abide by national security rules.

China’s Foreign Ministry spokesman Wang Wenbin said authorities had now “brought under control” the relevant companies, while aiming to “promote and standardize the healthy development of the relevant (consulting) industry.”

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

In March, the Beijing office of U.S. firm Mintz was raided and five Chinese members of staff were detained. Police visited Bain & Co’s Shanghai office last month.

Eric Zheng, president of the American Chamber of Commerce in Shanghai, expressed concern about the crackdown, while calling on authorities to “more clearly delineate” which areas of due diligence were permissible or not.

“Without proper due diligence, foreign companies will be unable to invest in new projects in China,” he said.

‘Intensify law enforcement’

More 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 consulting,” the state-owned Global Times said.

Some observers said the scrutiny was retaliation for U.S. attempts to choke off Chinese access to advanced technologies, including semiconductors, that have seen a slew of sanctions imposed on Chinese firms and entities.

“It is a concrete action taken by the Chinese government to step up counteraction against U.S. technology containment,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing.

There is particular concern that changes to the anti-espionage law from July 1 could ensnare more companies.

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

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