China consultancy crackdown rattles foreign firms

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STORY: Beijing’s latest crackdown on a consultancy firm in Shanghai is sending chills throughout China’s business community.

State broadcaster CCTV reported Monday that police had raided Capvision Partners over concerns of national security.

It comes after authorities targeted two other U.S. due diligence and consultancy firms in March and April, and ahead of changes to the country’s anti-spying law that could ensnare more companies.

CCTV said officials found that Capvision had accepted projects from overseas companies to source information, including "state secrets and intelligence" on sensitive sectors, such as defense and advanced technology.

The fallout from the Capvision raid continued on Tuesday, as sources told Reuters a unit of a major Chinese investment bank dropped the consultancy’s services.

In an internal memo confirmed by sources with direct knowledge, CICC Capital's research division banned all teams from using Capvision for due diligence-related expert calls and inquiries.

It added that the research teams should also review previous dealings with Capvision.

CICC declined to comment.

Capvision posted a statement after the CCTV Monday report, saying it would resolutely abide by China's national security rules.

But did not immediately respond to Reuters’ request for comment on the financial firm’s move.

Foreign Ministry spokesman Wang Wenbin said on Tuesday, authorities had “publicly brought under control the relevant companies”.

“This was, in accordance with Chinese law, an ordinary act of law enforcement to promote the healthy development of the relevant industry, and to safeguard China's national security and development interests.”

But the probes are rattling overseas business lobbies in China.

The EU's Chamber of Commerce in China said the crackdowns “send a worrying signal and heighten the uncertainty felt by foreign companies”.

While the American Chamber of Commerce in Shanghai called on authorities to “more clearly delineate” the permissible areas of due diligence.