5/24/23, 8:31 AM China is an increasingly hostile place for foreign consultancies | Financial Times

Make sense of it all.

Become an FT subscriber. Pay annually and save 20%.

Subscribe now

Opinion  Inside Business

China is an increasingly hostile place for foreign consultancies
Raids in recent weeks have left US and British companies uneasy about the future

JOE LEAHY

Chinese police during a raid at the Shanghai offices of the consultancy Capvision © CCTV/AP

Joe Leahy YESTERDAY

Receive free Chinese business & finance updates

We’ll send you a myFT Daily Digest email rounding up the latest Chinese business & finance news
every morning.

Enter your email address Sign up

https://www.ft.com/content/a4db534a-4bb5-4e08-8f83-470d91bd71bb 1/5
5/24/23, 8:31 AM China is an increasingly hostile place for foreign consultancies | Financial Times

For the cover of its latest position paper on doing business in the world’s second-
largest economy, the British Chamber of Commerce in China this year deliberately
chose red.

While the colour is auspicious in China, in the west it can signify negativity and a
barrier, such as on stop signs and traffic lights.

That ambiguity is meant to capture the situation in China today. While sentiment has
improved since 2022, when Beijing’s zero-Covid policy crushed the economy, mixed
messages and vague rulemaking in critical areas such as data security are keeping
foreign businesses on edge.

The latest shock came this week when China banned US chipmaker Micron’s products
from critical information infrastructure, following a G7 meeting in Hiroshima at the
weekend, in which the group accused Beijing of economic coercion and militarising
the South China Sea.

The Micron ban comes on top of raids in China on foreign consultancies in recent
weeks, which included the detention and disappearance of five employees from US
company Mintz, and a ban on auditor Deloitte.

Uncertainty is increasing despite the Communist party starting the year with a more
positive message. At the “two sessions” annual meeting of China’s parliament in
March, the new premier, Li Qiang, was at pains to stress the country was open for
business again.

Li said he had chatted with multinationals, including US companies. “They all told me
that they were optimistic about the future” of China, he said. He followed this up with
speeches and roundtables at the country’s biggest business forums, in which he
assured chief executives that the worst of zero-Covid was over.

But tension with the US, which is one source of Beijing’s increasing distrust of foreign
business, has continued to fester. It was exacerbated by February’s spy balloon
controversy.

https://www.ft.com/content/a4db534a-4bb5-4e08-8f83-470d91bd71bb 2/5
5/24/23, 8:31 AM China is an increasingly hostile place for foreign consultancies | Financial Times

Both sides accuse the other of obstructing attempts at repairing communications.

“We’re getting this very mixed message,” says Zou Zhibo, deputy director of the
Institute of World Economics and Politics at CASS, a think-tank that is closely
affiliated with the Chinese government. He says that efforts to repair relations during
a November meeting between US president Joe Biden and Chinese leader Xi Jinping
went sour after the US imposed export controls on high tech. “There’s no trust
because we don’t know who to trust.”

For investors, the clampdown on consultancies has had a chilling effect. The
authorities’ targets have ranged from ordinary blue-chip firms such as Bain and deep-
dive due diligence groups such as Mintz to expert companies that keep a Rolodex of
specialists that investors can call when exploring an acquisition or planning to source
goods from a supplier.

https://www.ft.com/content/a4db534a-4bb5-4e08-8f83-470d91bd71bb 3/5
5/24/23, 8:31 AM China is an increasingly hostile place for foreign consultancies | Financial Times

Foreign investors slowed down long-term investment

in China and pulled money out of its financial market
Changes in foreign direct investments into China and foreign holdings of
Chinese equities and bonds ($bn)

Equity and investment fund shares Debt instruments

Foreign direct investment

300

200

100

-100

2013 2016 2019 2022

The raids, for which there has been little to no explanation beyond allegations that the
suspects were sharing information deemed relevant to national security, have alarmed
foreign consultants operating in China.

One consultant at a European firm says that the government had always been keen to
control information flows. But now it was classifying more and more data as sensitive
under the “national security” label. He adds that the increasing emphasis on national
security has raised the risks for consultancy staff. “I’m . . . prepared for everything if it
becomes really hard businesswise,” he says. “What I’m always worried about is
individual employees.”

https://www.ft.com/content/a4db534a-4bb5-4e08-8f83-470d91bd71bb 4/5
5/24/23, 8:31 AM China is an increasingly hostile place for foreign consultancies | Financial Times

For UK businesses, the problems include uncertainty caused by sudden regulatory

changes, such as when the government cracked down on internet platforms in 2021 —
and even the end to the zero-Covid policy itself, which caught businesses by surprise.

The British chamber said that while its members were less pessimistic — this year 76
per cent were more optimistic about business in China compared with a record 42 per
cent who were pessimistic at the end of last year — 70 per cent said they were
adopting a wait-and-see approach.

All of this is contributing to lacklustre performances in Chinese equities and weighing

on the country’s economic recovery. As one consultant at a US company puts it,
everyone with clients in China today is advising them regarding risk, ranging from the
danger of conflict in the Taiwan Strait to how to make their data compliant with
Beijing’s changing requirements.

“Boardrooms are obsessed with this. They’re not quite sure how to draw the line:
‘Maybe I need to keep a lighter footprint in China, or maybe keep less capital there, or
be more nimble’,” he says.

[email protected]

Copyright The Financial Times Limited 2023. All rights reserved.

https://www.ft.com/content/a4db534a-4bb5-4e08-8f83-470d91bd71bb 5/5