A security member keeps watch outside a gate to the Zhongnanhai leadership compound, ahead of the National People's Congress in Beijing on March 3.FLORENCE LO/Reuters
Dennis Kwok is partner at Elliott Kwok Levine & Jaroslaw LLP (New York) and executive chairman of China Strategic Risks Institute, a think tank set to launch on Wednesday. Sam Goodman is executive director of China Strategic Risks Institute and senior policy director at Hong Kong Watch.
The recent expulsion of diplomats between Canada and China has caused companies to brace themselves against new risks of doing business in the Asian country.
But while that diplomatic row, over foreign interference allegations, certainly does make things harder for Canadian companies in China, this new reality would have come about anyway. There are greater forces at play.
A little-known but concerning column was published by Xinhua Net (a Chinese state-owned media agency) on April 14 to commemorate the anniversary of the enactment of the country’s National Security Law in 2015.
The news outlet talked about how foreign agents could make use of innocent Chinese businessmen, civil servants and students to steal state secrets and information that endanger national security. That much wasn’t new. But there was one item which caught the eye – it specifically mentioned how some management consultancies and technology companies are making use of data in the economics and technology spheres to endanger national security.
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Within the past month, international consulting companies such as Capvision, Mintz and Bain & Co. had their offices in Beijing and Shanghai raided by the Chinese police. It is likely to do with the surveys that consulting companies often do in China touching on key economic data. At the same time, a host of public data and sources disappeared from the Chinese internet. These include key economic and financial data that used to be accessible by the public and international analysts.
As much of the Western media and policy makers are still contemplating the prospects of a United States and China decoupling, the ruling Communist Party is already actively planning for bifurcation and self-sufficiency. The Made in China 2025 program, a reliance on domestic consumption as the main driver for the Chinese economy, and de-dollarization are part of this overall plan.
This increases the risks associated with investing and operating in China, not just for those working in due diligence or the technology sector. Any foreign company attempting to investigate intellectual property theft, fraud or the influence of Communist Party cells on their local company board could now see their local executives arrested and their offices raided on spurious grounds.
This trend of China’s decoupling with the West can also be seen in recent legislative developments in China. Its Anti-Foreign Sanctions Law, the Foreign State Immunity Law, Counter Foreign Espionage Law, the Data Security Law and Foreign Relations Law target foreign interference activities and enable Chinese state countermeasures in anticipation of foreign sanctions and embargo. They are also signs of preparation toward a bifurcation with the West.
The National People’s Congress, China’s legislature, also recently widened its anti-espionage laws with the aim of making any transfer of key data and information out of the country illegal. The Hong Kong government has announced that more laws on safeguarding national security will be enacted this year to cover “fake news,” foreign espionage activities and internet control in the former British colony.
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China is cracking down on foreign companies precisely at the same time that foreign companies and governments urgently need more accurate information on the Chinese economy and the state’s intentions regarding Taiwan – to not only safeguard their economic interests, but the interests of world peace.
Foreign investors instead are flying blind, with the implication that any data gathering on Chinese companies or the Chinese economy is now tightly bound up with national security.
In the case of President Xi Jinping, a man who came to power on the wave of an anti-corruption campaign, he is increasingly shrouding China’s economy in a cloak of secrecy in the name of national security.
Newly heightened tensions between China and Canada are but a drop in the vast ocean of deteriorating relations between the East and West. Given all that and the looming prospect of conflict in the Taiwan Strait, many foreign companies are already reviewing future investments in China. They are looking instead for bases of operations, including Canada, as an alternative to China for the production of critical minerals needed for electric cars and the green transition, or moving supply chain operations to Vietnam. The crackdown on foreign companies will accelerate this trend.
What it will inevitably do is bring into question existing Chinese operations for many American and Canadian companies. For some, like the Ontario Teachers’ Pension Fund, which closed down its China equity investment team in Hong Kong last week, they will conclude the risk of staying is simply too high, speeding up the partial bifurcation between China and the West.
However, a total split is too unrealistic to achieve at this point given the past four decades of economic engagement. More icebergs ahead for the companies that remain in China.
Editor’s note: A previous version of this article stated that the Ontario Teachers's Pension Fund closed its Hong Kong office. In fact, it closed down its China equity investment team.