China Ratchets Up Pressure on Foreign Companies
Story by Lingling Wei • Friday
Chinese authorities have embarked on a campaign to bring foreign businesses to heel, just months after Beijing delivered an open-for-business message to global investors.
In recent weeks, Chinese authorities have questioned staff at consulting firm Bain & Co.’s Shanghai office in a surprise visit, launched a cybersecurity review of imports from chip maker Micron Technology Inc., detained an employee of Japanese drugmaker Astellas Pharma Inc. and raided the Beijing office of U.S. due-diligence company Mintz Group.
The government has broadened its spy law to counter perceived foreign threats, including allowing for the inspection of baggage and electronic devices of those suspected of espionage, significantly raising the risks for Western companies operating in China.
For the past few years, Xi Jinping, the third-term Chinese leader who has long distrusted capitalist forces, has been on a campaign to rein in China’s private sector. As China gears up for greater competition with the U.S., the government is now shifting its focus to make American and other foreign companies fall in line.
Business executives who have consulted with Chinese authorities say a central tenet of the effort is the desire to more tightly control the narrative about China’s governance and development, and limit the information collected by foreign companies such as auditors, management consultants and law firms that could influence how the outside world views China.
That has worried the Western business community, which relies on credible information and professional service to assess risks in China.
“The business community necessarily needs information,” said Lester Ross, a Beijing-based lawyer and chair of the policy committee at the American Chamber of Commerce in China. “There is therefore a risk that people will be unable on behalf of their companies to gather sufficient information for fear of being branded an espionage agent.”
Some foreign business executives say they worry the rewriting of the espionage law means that many topics, ranging from the status of Taiwan to China’s human rights record to technology such as semiconductors, are now becoming off limits in discussions with their Chinese counterparts.
The recent trouble for foreign companies in China is drawing criticism in Washington. Rep. Mike Gallagher, a Republican from Wisconsin who chairs a congressional committee on the Chinese Communist Party, said in a statement Thursday, “Our business leaders need to take off their golden blindfolds and recognize that the recent police raids of American companies Bain and Mintz are not one-offs, but part of a long, proud tradition of exploitation.”
“China is committed to protecting foreign businesses’ lawful rights and interests and creating a favorable environment for foreign investment,” said Liu Pengyu, a spokesman for the Chinese Embassy in Washington, after publication of this article. “All foreign companies abiding by Chinese laws and regulations enjoy full business autonomy in their operation.”
The push is driven by a deepening conviction within China’s leadership that foreign capital, while important to China’s economic rise, isn’t to be fully trusted, say people familiar with the government’s thinking. That view has gained traction over the past year, especially since the U.S. in October passed a ban on selling high-end chip-making technology to China, with Chinese officials believing certain companies, such as Micron, were behind the U.S. action.
Micron has said that it stands by the security of its products and is in communication with China’s cybersecurity regulator.
Mr. Xi has made his priorities especially clear in the past few months. In opening a Communist Party congress in October, he indicated that a main goal for the next five years amid rising tensions between China and the U.S.-led West is to build a geopolitically resilient economy that is much less reliant on foreign markets and technology.
During the country’s annual legislative session in March, the leader took rare direct aim at the U.S., blaming what he termed a Washington-led campaign to suppress China for recent development challenges facing the country. He has made the ability to fight Western sanctions, particularly restrictions on China’s ability to advance strategic technologies, a performance measure for his underlings.
But Mr. Xi’s offensive against foreign businesses could threaten the government’s growth objectives at a time when some senior officials have grown worried that heightened geopolitical tensions are driving foreign investors and businesses away.
At the Davos economic forum in January, for instance, then-Vice Premier Liu He, Mr. Xi’s top economic adviser for the past decade, expressed such concerns in a meeting with BlackRock’s Chief Executive Larry Fink and sought his advice on how to keep foreign capital from leaving, according to people with knowledge of the matter. BlackRock declined to comment.
Li Qiang, Mr. Xi’s handpicked premier, in late March sought to bolster confidence among foreign businesses at a high-level economic forum on the southern Chinese island of Hainan. Mr. Li called China an “anchor for world peace” and expressed optimism about the country’s economic recovery.
Chinese officials involved in policy discussions say Beijing has no intention of pushing foreign companies out the door and have encouraged them to expand production in China. But they also say those companies should do a better job of helping advance China’s development in exchange for their access to the Chinese market.
A commonly held view in Beijing’s leadership, the officials say, is that most multinationals can’t afford to lose the ability to sell and produce in China.
Not all companies are treated with suspicion. Tesla Inc., whose electric-vehicle plant in Shanghai has helped propel China’s EV industry, is expanding its operations there with a large battery plant.
Chinese leaders have long regarded Wall Street as a lobbying force for Beijing in Washington and even as it cracks down on a range of foreign businesses, China has made it easier for U.S. financial firms to operate in the country. Since late last year, JPMorgan Chase & Co., Fidelity International and Neuberger Berman have received rare licenses for wholly owned mutual-fund firms in China.
Still, Beijing is exerting greater pressure on foreign businesses as a way of hitting back at the U.S. and other Western actions seen as threatening China’s interests.
In other efforts to pressure American companies, Chinese regulators have slowed down their merger reviews of a number of proposed acquisitions by U.S. companies that need Beijing’s blessing, including Intel Corp.’s $5.2 billion takeover of Israel-based Tower Semiconductor Ltd. and chip maker MaxLinear Inc.’s $3.8 billion purchase of Silicon Motion Technology of Taiwan, The Wall Street Journal reported.
China will still be selective in going after U.S. companies, Arthur Kroeber, founding partner and head of research at economic consulting firm Gavekal Dragonomics, wrote in an April report. “It wouldn’t be in China’s interest to create such a climate of fear among U.S. companies that they conclude that China is a dangerous market and start to head for the exits,” he wrote.
A survey conducted by the American Chamber of Commerce this month shows that about 27% of its respondents are shifting priorities to countries other than China when making their investment decisions. That figure was 6% in a poll conducted late last year.
Foreign money managers are also having a rethink about China, paring back their exposure in some cases and in others shifting from long-term commitments to short-term bets. For instance, Texas’ teachers retirement fund last year cut its China stock allocation by half, and Florida’s public-worker fund halted new investment strategies in China.
In the past five trading sessions, global investors have pulled a net $3.17 billion from Chinese equities through the popular Stock Connect cross-border trading link, according to an analysis from Exante Data. That is the longest outflow streak since November.
—Jack Pitcher contributed to this article. |
