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For weeks, little was known why a prominent international consulting firm in China was raided by police. The employee was questioned for doing what has long been the cornerstone of his job: compiling information on Chinese markets, companies and policies for foreign clients working in the world’s second-largest economy. or were detained.
The motives behind the raids involving American companies such as the Mintz Group and Bain & Co. have begun to emerge.
Beijing has also moved to restrict the use of financial data for foreign customers, expanding its already sweeping anti-espionage laws. There is growing concern in industry that China’s commercial intelligence will be wiped out as geopolitical competition with the United States intensifies, especially if China loses access to advanced U.S. semiconductors. is irritating.
CCTV, China’s state broadcaster, used language that reflected China’s supreme leader Xi Jinping’s recent condemnation of the West as part of a “strategy” in which the West was forced to invest in defense, finance, energy, He accused them of stealing intelligence information in key industries such as health. of containment and suppression against China. “
Providing a 15-minute special report on the issue and focusing on a Shanghai- and New York-based consulting firm called Capvision Partners, the broadcaster said that “overseas agencies” partnered with domestic consulting firms to Accused of hiding the background. Circumvent Chinese laws and regulations.
The campaign is Beijing’s attempt to encourage foreign companies to reinvest in China and help revive an economy that is still trying to recover after large parts of the economy were effectively shut down from the world by harsh anti-Covid restrictions. New data released by the Chinese government on Tuesday showed a sharp decline in imports last month, another sign that growth remains fragile.
“Whatever China gains from restricting ‘classified’ information is not worth the reputational cost China is paying foreign companies,” said a senior fellow at the Center for Strategic and International Studies. said former U.S. intelligence officer Gerald DiPippo. The raid “will have a chilling effect, especially for investors and local staff employed by US companies.”
With China’s rise, the crackdown has spotlighted a vast industry of due diligence and business intelligence firms that help make sense of the country’s lucrative but often opaque economy.
Capvision seems to have been close to the heart of that industry. According to its website, Capvision offers a matchmaking service that connects clients seeking more information with his roster of 450,000 “experts” in various industries. It says its clients include most of the world’s leading consulting firms, the largest private and venture capital firms investing in China, and China’s largest financial brokerage firms.
State media said they raided several of the company’s offices in China, including Shanghai, Beijing, Suzhou and Shenzhen. It added that the company “has not taken seriously its responsibilities and obligations” to prevent espionage.
Capvision did not respond to a request for comment.
On Monday night, the company said on its official account on China’s social media and chat app WeChat that it would “firmly implement national security development” and play a leading role in regulating the consulting industry.
Mintz, which specializes in corporate investigations, said in March that Chinese authorities had raided its offices, detained five Chinese staff members, and closed its branches. Bain said security personnel visited its offices last month and questioned employees.
Police told state-run Jiangsu TV that Capvision was in frequent contact with “secret officials” of the Communist Party of China and officials in areas such as defense and science. Authorities accused Capvision of hiring consulting experts “at high pay” to “illegally obtain various types of sensitive data,” posing “significant and hidden dangers to China’s national security.” will bring,” he said.
At least one employee of the state-owned company was arrested and sentenced to six years in prison for providing “national secrets and information” to Capvision’s foreign clients as a result of the investigation, CCTV reported.
The image of an employee surnamed Han in an interview with a state-run broadcaster was blurred and appeared to be wearing prison uniform. However, he said he changed his mind when the company offered to double his consulting fees. I did.
Last month, China’s newly revised anti-espionage law expanded the definition of what could be construed as a spy. The law stipulated that sharing “documents, data, materials, or things” could be considered an act of espionage if the information “releved to national security and interests.” companies and governments.
The amendments signal a renewed focus by the Chinese government on limiting the release of information deemed sensitive to foreign investors and the government. China restricts foreign access to its largest academic database distributing research papers, dissertations and statistics, and there are reports that some overseas users have limited access to company registration databases. .
China is at odds with the United States over restrictions on microchip technology and growing fears of Chinese control over the materials and components used to produce electric vehicles. helped build a global supply chain that linked them as strategic partners, but these relationships, if not geopolitical allies, are now fraying.
Founded in 2006 by former Bain consultants and Morgan Stanley investment bankers, Capvision has headquarters in New York and Shanghai and 700 employees.
In 2021, Capvision filed listing documents in Hong Kong, but the shares did not debut.
In its investor prospectus, the company said it was the largest provider of “expertise services” in China, with a 33% market share and five times more sales than its closest competitor.
In the US, such companies were targeted by the US Securities and Exchange Commission in 2011 as part of a crackdown on insider trading by hedge funds. In these cases, companies were often used to pass on non-public information about the company’s revenue and strategies to gain trading advantage. Such companies have largely disappeared from the public eye in the United States.
In 2013, Capvision co-founder Kai Hong told Reuters it was taking advantage of the fact that “the flow of information in China has always been pretty opaque.”
Following news of a raid on a consulting firm last month, the U.S. Chamber of Commerce warned of increased risks in doing business in China.
DiPippo of the Center for Strategic and International Studies said China will remain an important market for Western companies, but the growing risks are driving many companies to increasingly diversify their investments in other countries. said he would.
“The Chinese economy cannot fully recover until private sector sentiment and investment improves,” he said.
Claire Who and Olivia Wang Contributed to research.
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