Police Raid Consulting Firm as China Starts Anti-Spy Campaign

Bloomberg News
·4 min read
49

(Bloomberg) -- China has launched a nationwide anti-espionage crackdown on consulting firms, according to state media, accusing one global company of leaking state secrets and having ties with foreign intelligence agencies.

Most Read from Bloomberg

On orders from China’s central government, authorities carried out synchronized operations in cities including the financial powerhouses of Beijing, Shanghai, Shenzhen and Suzhou, a provincial TV channel in Jiangsu province reported Monday night. The state broadcaster didn’t say where it got the information or provide a timeframe for the raids.

State security officials visited the Suzhou branch of Capvision, a consulting firm with headquarters in New York and Shanghai, the broadcaster said. Capvision employees in the city that neighbors Shanghai were questioned and some items were searched and seized, according to the report, which didn’t identify whether other firms were also targeted.

Security officials have found Capvision accepted consulting projects from overseas companies with close ties to foreign governments, military and intelligence agencies, according to a Tuesday report shared by the official WeChat account of the Central Political and Legal Affairs Commission, the Communist Party’s top legal body.

Capvision said in a statement posted to its WeChat account on Monday evening that it will resolutely stick to national-security policies and take the lead to guide the healthy development of the consulting industry.

China’s Foreign Ministry spokesman Wang Wenbin called the probe “normal law enforcement actions” designed to develop a “well-regulated” sector, at a regular briefing in Beijing on Tuesday.

Beijing has taken several steps in recent months to tighten foreign access to sensitive information amid growing tensions with the US, despite Premier Li Qiang’s recent vow to establish a “broad space” for foreign companies in China. The government last month passed a vague new counter-espionage law that expanded the list of activities that could be considered spying, intensifying the risks for foreign firms.

US consultancies — often used by overseas investors and multinational companies to conduct due diligence and research in China — are particularly in the spotlight. In recent weeks, authorities have questioned staff at the China offices of US consultancy Bain & Company and targeted New York-based due-diligence enterprise Mintz Group.

“Foreign companies need to assess whether the work they’re doing in China might be viewed as supporting a hostile agenda,” said Gabriel Wildau, managing director at advisory firm Teneo Holdings LLC in New York. “Information that on its face doesn’t appear sensitive or relevant to national security might be viewed as such if it’s used in the context of providing advice in service of an anti-China or pro-decoupling agenda.”

It’s not clear where the red lines are, so any work that sits in a gray area should probably be performed outside China, Wildau added. “My sense from the recent incidents is that Chinese staff and long-term expatriates are at greater risk than visiting executives,” he said.

State Secrets

Chinese authorities have recently found that “overseas institutions with complex backgrounds” have relied on domestic consulting companies to steal state secrets, according to the Tuesday report shared by the Central Political and Legal Affairs Commission.

The report cited a police officer from Shanghai’s national security bureau as saying Capvision also accepted consulting projects in sensitive fields such as national defense and cutting-edge technology. This compelled its staff members to call military enterprises and sensitive research units for information — both areas where Washington has imposed trade restrictions on China in recent months.

In that environment, Beijing has pushed to curtail access by overseas firms to Chinese data sources, in part, in response to a series of reports written by US research institutions that have reinforced Washington’s hard line on China, the Wall Street Journal reported this week, citing people with knowledge of the matter.

Chinese services such as Wind Information Co. in recent months stopped providing detailed data on the nation’s companies to overseas clients. The Cyberspace Administration of China, the country’s powerful internet overseer, also notified data providers in March to restrict overseas access to sensitive information such as patents and statistics, the Journal reported, citing people who have consulted with Chinese authorities.

Registry databases at Qichacha and TianYanCha — companies that provide similar services — have also been inaccessible for some time to users outside mainland China, according to several people familiar with the matter.

--With assistance from Li Liu, Jacob Gu, Lucille Liu, Jon Herskovitz, Rebecca Choong Wilkins and Sarah Zheng.

(Updates with Chinese foreign ministry comment in sixth paragraph.)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.