China Crackdown On Foreign Firms Threatens Economy

China has tightened up its national security scrutiny in recent months by probing foreign consulting companies, testing the nerves of foreign investors who have long been concerned about policy uncertainties, an issue that has long undermined the attractiveness of the Chinese market, Andrew Mullen reported for the South China Morning Post (SCMP).

Photo Insert: Chinese authorities recently raided international consulting firm Capvision.

In the latest move, authorities raided international consulting firm Capvision. It was accused of helping to leak information about the Chinese military technology industry to foreigners.

Another global consultancy firm, Bain & Company, also said staff in its Shanghai office were questioned by police in April.

Early signs could be worrisome. Foreign direct investment inflows into China dropped in the first four months of the year, despite Beijing’s intensive charm offensive to woo foreign investors to heal its Covid-torn economy, further clouding an already uneven economic recovery.

Earlier, corporate due diligence firm Mintz Group closed its China office in Beijing after five Chinese staff were detained by the police over “suspected illegal business operations.”

The raids triggered foreign investors’ outcry about the absence of predictable, transparent and stable policies in China.

State media defended the raids as “pressing and necessary” to close a loophole in national security and promote the healthy development of industries at a time when tools for espionage are more sophisticated with the help of technology and new business.

The intensified national security checks came against a backdrop of a more confrontational rivalry with the US, which has also tightened its national security surveillance and put a number of Chinese companies on its blacklist.

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