Business Standard

Foreign executives in China ask 'Who's Next?' After Bain & Company probe

US consultancy Bain & Company confirmed this week that Chinese authorities questioned staff at its Shanghai office, without revealing details on the nature of the investigation

China

China

Bloomberg
Just as China’s leaders look to attract more overseas investment, expatriates in the world’s second-biggest economy are becoming worried about a potential fresh wave of probes targeting foreign companies. 
 
US consultancy Bain & Company confirmed this week that Chinese authorities questioned staff at its Shanghai office, without revealing details on the nature of the investigation. That followed a series of actions taken against other foreign companies, including a raid last month of New York-based due diligence firm Mintz Group’s Beijing operations and the detention of an employee of Japanese drugmaker Astellas Pharma Inc. just days later.  

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

The growing fear within China’s business community contrasts with public messages from senior leaders including Premier Li Qiang, who called the nation “an anchor for world peace and development” last month in a speech aimed at wooing the global business community. Beijing has also welcomed a host of leaders and business delegations, including from Germany and France, as part of a broader charm offensive to reset diplomatic ties. On Friday, China’s Politburo urged greater efforts at boosting foreign investment.   

Still, tensions between the US and China have continued to escalate over the control of crucial supplies of advanced semiconductors. Beijing in March launched a cybersecurity review of US chipmaker Micron Technology Inc., a move that exacerbated US-China tensions and which followed Washington-led efforts to contain China’s access to strategic technologies. China also passed a new counter-espionage law that expanded the list of activities that could be considered spying, raising new risks for foreign companies. 

Global investors remain wary of Chinese stocks despite evidence of the country’s improving economic growth and corporate earnings. Nervousness around geopolitics is limiting inflows and performance, with traders evaluating how China’s tense relationship with the US might deteriorate. The MSCI China Index has lost about 5% in April, among the world’s worst. Asia funds, who unlike their US counterparts turned overweight on China during the reopening trade, are now cutting their exposure. 

At a briefing in Tokyo on Friday, China’s ambassador to Japan, Wu Jianghao, said the detention of an Astellas Pharma employee was related to a spying incident that damaged Beijing’s sovereignty. He said the media were giving the impression that visitors could be in danger just walking down the street, taking photographs, or talking to friends. He denied this was the case and said anyone conducting normal friendship or business activities would be welcomed. 

Inside China, the mixed messages from the government — saying it welcomes investment while still conducting raids on foreign companies — is causing anxiety, according to one foreign management consultant who asked not to be identified due to the sensitivity of the subject. While Chinese authorities occasionally investigate a firm’s activities with certain clients, the person said, risks are growing due to a broader definition of national security.

Announcements of more investigations would signal it’s “open season” on US companies, prompting a broader rethink in board rooms about the risks of doing business in China, according to an American businessman in Shanghai who asked not to be named. Either way, he said, companies are already thinking twice about how they operate and what type of information they are able to access. 

Not everyone is concerned. Chris Devonshire-Ellis, chairman of Dezan Shira & Associates, which provides investment and compliance services to foreign investors throughout its 13 offices in China, said he hadn’t received more inquiries from clients concerned about Bain or similar recent incidents. 

‘Blown Up Out of Proportion’
 
“Expatriates and businesses in China are talking about it,” he said. “However, no one is going to change their operational plans just because a US company received a visit from the authorities.” 

“It has been blown up out of proportion,” Devonshire-Ellis added. 

The environment had already been getting worse before the latest disclosures. Authorities have urged state-owned firms to phase out using the four biggest international accounting firms, Bloomberg News reported in February. The country is no longer a top three investment priority for a majority of US firms, according to an AmCham business climate survey published earlier this year.

There have also been growing concerns over the transparency of China’s economic data, making it harder for some investors to operate. Late last year, China delayed the publication of gross domestic product data. Platforms have also paused publishing data on bond trades by foreigners and certain investment returns.

“The Chinese government has continuously said it welcomes foreign investment,” said Hart from Amcham. “However, a flurry of recent actions taken again US enterprises in China has sent the opposite message.” 

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Apr 28 2023 | 9:22 PM IST

Explore News