China’s security specter hangs over foreign firms

Foreign firms face a crisis of confidence in China. Expanded espionage and national security laws have rattled big business, threatening to trigger an exodus of multinational companies. 

The fallout for the world’s second-largest economy could be immense.

Last week, the Financial Times reported that Chinese police raided American consultancy Bain & Company in Shanghai. Earlier, a similar operation was launched against the due diligence group Mintz.

“Our business community is spooked, and our members are asking, ‘Who’s next?’ Irrespective of the government’s intention, that’s the message being received,” Michael Hart, the president of the American Chamber of Commerce in China, said. 

Rising tension:

• Targeting United States-based companies in China is just the latest flashpoint between Beijing and Washington.
• Last month, American chip company Micron Technology underwent a cybersecurity review in the world’s second-largest economy.
• It comes at a time of deteriorating relations between China and the US.
• Key battlegrounds include the South China Sea, Taiwan and Beijing’s disregard for international law.
• Geopolitical stress has now spilled over into the corporate sector.

The amended legislation covers not just state secrets but all documents …

Elizabeth Braw, of the American Enterprise Institute

Delve deeper: “[We] are concerned about a recent uptick in coercive actions targeting US firms, which comes at the same moment that China states that it is re-opening for foreign investment,” US Treasury Secretary Janet Yellen said last month.

Between the lines: Elizabeth Braw, of the American Enterprise Institute, went even further in her analysis of Beijing’s expanded espionage and national security laws.

Crucial issue: “The amended legislation covers not just state secrets but all documents concerning national security – and it doesn’t define what constitutes national security,” she wrote for the Washington-based think tank.

Dangerous precedent: “That, in combination with China’s willingness to weaponize globalization, makes it extremely dangerous for Western businesses to remain in China,” Braw said.

Official view: The latest catch-all laws include “documents, data, materials and items related to national security,” Xinhua, the official voice of the ruling Communist Party of China, said. But the news agency refused to clarify the definition of “national security.”

China Factor comment: So much for new Premier Li Qiang’s comments that “China will open its door wider and wider” to foreign firms.