hongkongfp.com
by Hong Kong Free Press
9 hours ago21:04, 15 May 2023
An advisory firm in China has asked their staff to review each source they obtain data from, after Chinese authorities raided three firms in the sector, an executive from the company has told HKFP.
“It put us all on alert,” the executive, Connie, said, whose firm provides data and advice on Chinese market for large foreign corporations. The source was granted a pseudonym over fears of repercussions.
File photo: Max Pixel.
China has taken measures against three advisory firms over the past few months. All firms were US-headquartered, global groups involved in data collection, investigative and strategic analysis.
At the centre of the latest crackdown was Capvision, a New York-headquartered company with offices in five Chinese cities. State media reported on Monday that the National Security Bureau of Suzhou province and other departments took part in a joint enforcement action against Capvision. The authorities reportedly claimed that they “handled the company under the law and regulations.”
“Focus Talk,” a television programme on China state-run CCTV, showed the enforcement action against Capvision and announced that two Chinese scholars working for Capvision had been arrested. Photo: CCTV screenshot.
The raid took place at the end of last year and two Chinese scholars accused providing “classified information” to Capvision and their foreign clients were arrested. One of them was sentenced to six years in prison for “stealing national secrets” after they “confessed” to their crime on state TV.
Earlier, two international firms were raided in China. In a March 24 statement to Reuters, US corporate due diligence firm Mintz said that the Chinese authorities had raided and closed its office in Beijing, and detained five staff – all Chinese nationals. On 27 April, police questioned staff at Bain & Company’s Shanghai office, a company spokesperson told HKFP on Friday.
Connie, the Chinese executive, said that – after Beijing passed an amendment to the anti-espionage law – the recent crackdown prompted a chilling effect among the industry: “We just don’t understand how the government defines espionage. Will we be accused of being spies when we are collecting Chinese data?”
HKFP has reached out to Capvision and Mintz for a response.
“It’s scary. It’s completely unknown where the five staff of Mintz are in more than one month. Many companies are worried because they have offices in the mainland. My company has not set up one because of the risks in China,” they said.
Mintz Group. Photo: HKFP remix.
Due diligence firms, often viewed as part of the advisory services industry, usually work with hedge funds, mutual funds and companies to provide credible information and intelligence about large investments, mergers and acquisitions, or provide background checks for clients who are recruiting.
Capvision’s website says it offers its global clients access to a network of over 450,000 Chinese scholars with different professions. The company has filed to go public in Hong Kong twice, but the listing application lapsed. According to its 2022 IPO prospectus, scholars working with Capvision provided 150,000 hours of consultation for its clients, bringing in an average income of 520,000 RMB (HK$586,755) from each client.
Two men, with blurred faces featured in the CCTV programme, “confessing” that they were Chinese scholars and had leaked classified information to Capvision.
Chinese state media claimed that the company lured scholars to leak state secrets with high consultation fees, without disclosing that the information would go to foreign companies. The popular TV show Focus Talk reported on the enforcement against Capvision with the headline “The consultation sector with an ulterior motive,” as it accused foreign institutions of leveraging consulting companies to obtain Chinese secrets.
Alfred Wu, an associate professor of the school of public policy at National University of Singapore. Photo: University of Singapore.
“But the trend in recent years is that the authorities always put the importance of safeguarding national security first, rather than economic development,” said Wu, who specialises in political economy of China.
Beijing passed amendments to the anti-espionage law on April 26. The revised law, coming into effect on July 1, will see an expanded definition of espionage by including “agents of spy organisations.” It also makes reference to “stealing, spying, bribing, illegally providing state secrets,” as well as engagement in activities that “instigate, lure, coerce, or bribe national personnel to defect national personnel.”
Wu said espionage is loosely defined in the revised law: “What are ‘national interests’ exactly? Will it be considered to be spying if people dig out statistics of Chinese vaccines? In the long run, it will intimidate researchers into not entering China,” Wu said.
Wind Information Co, a financial database based in Shanghai, has prevented overseas access to its company registry data in recent months, Bloomberg has reported.
China National Knowledge Infrastructure. Photo: China National Knowledge Infrastructure.
Meanwhile, China National Knowledge Infrastructure, a large database comprising of academic papers and Chinese statistics, announced that it will suspend overseas access to four of its databases – including China Statistical Yearbooks – from April 1.
Even some local Chinese government websites cannot be reached in Hong Kong, Canada, the US, UK and Australia, tests by the researcher and HKFP have found. Access to municipals websites for provinces such as Guizhou, Hebei, Fujian and Shandong, as well as the cities of Chaozhou, Guizhou, Dali, were blocked as of Friday. Each were still accessible in mainland China, whilst websites of some other cities and provinces were still reachable internationally.
“There are some local government websites I could still reach two weeks ago. One day, around 10 days ago, it suddenly blocked overseas access,” said the researcher. “Doing research about current China is extremely difficult today. ”
An individual who picked up the phone at one local administrative office admitted that the local government website was inaccessible to those abroad, when HKFP called, posing as a tourist.
Photo: Rachel Johnson, via Flickr.
Wu, the NUS scholar, said that limiting cross-border transfers of data is seen by Chinese authorities as an important way to safeguard national security and maintain social stability.
The Cyberspace Administration of China launched a new rule last September specifying that firms that need to transfer “important information” overseas should apply for permission from them beforehand, without providing a clear definition of “important.” Different institutions and companies have nevertheless had to develop compliance procedures since the rule took effect.
The raids were partly triggered by several US think tank reports, reported the Wall Street Journal, quoting a source with direct knowledge of the matter. One of the think tanks analysed online purchase orders in China, showing that the military had access to advanced chips designed by the US and manufactured in Taiwan and South Korea.
Victor Shih, associate professor at UC San Diego. Photo: UC San Diego.
Victor Shih, associate professor at UC San Diego and an expert on Chinese politics, said that the US and China are involved in tit-for-tat moves. Washington slapped sanctions on Chinese companies in the internet, bio-technology and pharmaceutical industries, while Beijing barred US arms manufacturers from investing in China. However, taking action against global advisory firms “took things to the next level,” he added.
Shih said the due diligence and advisory services industries are essential for both foreign and domestic investment in the Chinese market: “You can’t give away your money when you don’t have enough information. And we all know you will come across scams like the case of Sino-Forest Corporation or Luckin Coffee,” he said in reference to recent corporate scandals. “It’s important to invest carefully.”
“Why are there all these consulting companies in China trying to do research on China’s economy and Chinese companies? It’s not like a plot, it is just because China is important.” Shih added. “It’s very puzzling considering Beijing says that it will boost foreign investment and entrepreneurial spirit. It seems like the right hand doesn’t know what the left hand is doing.”
Shanghai. File photo: PEng Liu, via Pexels.
Following the raids on the three companies, Eric Zheng, the president of the American Chamber of Commerce in Shanghai, issued a statement saying: “We are concerned by recent reports about investigations [into] US companies in China that specialize in due diligence or consulting. It would be helpful if the authorities would more clearly delineate the areas in which companies can or cannot conduct such due diligence. This would give foreign companies more confidence and enable them to comply with Chinese regulations.”
Chinese Foreign Ministry spokesperson Mao Ning said on March 27 that Mintz was suspected to have run an illegal business and the case is under investigation.
There was no update as to whether the five Mintz staff had been released as of the time of publishing.
On May 8, Capvision published a since-removed poster on their WeChat account highlighting April’s National Security Education Day, saying that “[n]ational interests are above everything else” and the company will “completely implement the concept of national security development.”
Capvision published a poster on their WeChat account on May 8 highlighting April’s National Security Education Day. Photo: WeChat screenshot.
Two days later, the firm announced that it would set up a board of compliance to implement requirements ordered by national security bureaus.
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Advisory firms on alert after China raids and arrests, as experts say data crackdown will hinder int’l investment
“It’s very puzzling considering Beijing says that it will boost foreign investment and entrepreneurial spirit. It seems like the right hand doesn’t know what the left hand is doing,” said China politics expert Victor Shih.by Hong Kong Free Press
9 hours ago21:04, 15 May 2023
An advisory firm in China has asked their staff to review each source they obtain data from, after Chinese authorities raided three firms in the sector, an executive from the company has told HKFP.
“It put us all on alert,” the executive, Connie, said, whose firm provides data and advice on Chinese market for large foreign corporations. The source was granted a pseudonym over fears of repercussions.
China has taken measures against three advisory firms over the past few months. All firms were US-headquartered, global groups involved in data collection, investigative and strategic analysis.
At the centre of the latest crackdown was Capvision, a New York-headquartered company with offices in five Chinese cities. State media reported on Monday that the National Security Bureau of Suzhou province and other departments took part in a joint enforcement action against Capvision. The authorities reportedly claimed that they “handled the company under the law and regulations.”
“Focus Talk,” a television programme on China state-run CCTV, showed the enforcement action against Capvision and announced that two Chinese scholars working for Capvision had been arrested. Photo: CCTV screenshot.
The raid took place at the end of last year and two Chinese scholars accused providing “classified information” to Capvision and their foreign clients were arrested. One of them was sentenced to six years in prison for “stealing national secrets” after they “confessed” to their crime on state TV.
Earlier, two international firms were raided in China. In a March 24 statement to Reuters, US corporate due diligence firm Mintz said that the Chinese authorities had raided and closed its office in Beijing, and detained five staff – all Chinese nationals. On 27 April, police questioned staff at Bain & Company’s Shanghai office, a company spokesperson told HKFP on Friday.
| HKFP grants anonymity to known sources under tightly controlled, limited circumstances defined in our Ethics Code. Among the reasons senior editors may approve the use of anonymity for sources are threats to safety, job security or fears of reprisals. |
Connie, the Chinese executive, said that – after Beijing passed an amendment to the anti-espionage law – the recent crackdown prompted a chilling effect among the industry: “We just don’t understand how the government defines espionage. Will we be accused of being spies when we are collecting Chinese data?”
HKFP has reached out to Capvision and Mintz for a response.
Foreign firms ‘lured scholars‘
Hong Kong due diligence researchers and consultants also told HKFP they felt intimidated. One researcher at a locally-based global firm said that colleagues were anxious to know whether the enforcement targeted specific cases, or whether there was a large-scale crackdown on the whole foreign advisory industry underway.“It’s scary. It’s completely unknown where the five staff of Mintz are in more than one month. Many companies are worried because they have offices in the mainland. My company has not set up one because of the risks in China,” they said.
Due diligence firms, often viewed as part of the advisory services industry, usually work with hedge funds, mutual funds and companies to provide credible information and intelligence about large investments, mergers and acquisitions, or provide background checks for clients who are recruiting.
Capvision’s website says it offers its global clients access to a network of over 450,000 Chinese scholars with different professions. The company has filed to go public in Hong Kong twice, but the listing application lapsed. According to its 2022 IPO prospectus, scholars working with Capvision provided 150,000 hours of consultation for its clients, bringing in an average income of 520,000 RMB (HK$586,755) from each client.
Chinese state media claimed that the company lured scholars to leak state secrets with high consultation fees, without disclosing that the information would go to foreign companies. The popular TV show Focus Talk reported on the enforcement against Capvision with the headline “The consultation sector with an ulterior motive,” as it accused foreign institutions of leveraging consulting companies to obtain Chinese secrets.
Widened definition of espionage
Alfred Wu, an associate professor of the school of public policy at National University of Singapore (NUS), said that it was unclear why the authorities recently took intensive moves against foreign companies, when Beijing has said it was seeking to boost the economy after the lifting of harsh anti-Covid measures.
“But the trend in recent years is that the authorities always put the importance of safeguarding national security first, rather than economic development,” said Wu, who specialises in political economy of China.
Beijing passed amendments to the anti-espionage law on April 26. The revised law, coming into effect on July 1, will see an expanded definition of espionage by including “agents of spy organisations.” It also makes reference to “stealing, spying, bribing, illegally providing state secrets,” as well as engagement in activities that “instigate, lure, coerce, or bribe national personnel to defect national personnel.”
Wu said espionage is loosely defined in the revised law: “What are ‘national interests’ exactly? Will it be considered to be spying if people dig out statistics of Chinese vaccines? In the long run, it will intimidate researchers into not entering China,” Wu said.
Cross-border data transfer curbed
The Hong Kong-based researcher used to rely on Chinese database platforms to collect statistics. However, since early May, platforms including Tianyancha and Qichacha – critical portals providing Chinese company registry search online – halted access for offshore users.Wind Information Co, a financial database based in Shanghai, has prevented overseas access to its company registry data in recent months, Bloomberg has reported.
Meanwhile, China National Knowledge Infrastructure, a large database comprising of academic papers and Chinese statistics, announced that it will suspend overseas access to four of its databases – including China Statistical Yearbooks – from April 1.
Even some local Chinese government websites cannot be reached in Hong Kong, Canada, the US, UK and Australia, tests by the researcher and HKFP have found. Access to municipals websites for provinces such as Guizhou, Hebei, Fujian and Shandong, as well as the cities of Chaozhou, Guizhou, Dali, were blocked as of Friday. Each were still accessible in mainland China, whilst websites of some other cities and provinces were still reachable internationally.
“There are some local government websites I could still reach two weeks ago. One day, around 10 days ago, it suddenly blocked overseas access,” said the researcher. “Doing research about current China is extremely difficult today. ”
An individual who picked up the phone at one local administrative office admitted that the local government website was inaccessible to those abroad, when HKFP called, posing as a tourist.
Wu, the NUS scholar, said that limiting cross-border transfers of data is seen by Chinese authorities as an important way to safeguard national security and maintain social stability.
The Cyberspace Administration of China launched a new rule last September specifying that firms that need to transfer “important information” overseas should apply for permission from them beforehand, without providing a clear definition of “important.” Different institutions and companies have nevertheless had to develop compliance procedures since the rule took effect.
Tit for tat
News of the crackdown on US firms came amid ongoing tensions between China and the US.The raids were partly triggered by several US think tank reports, reported the Wall Street Journal, quoting a source with direct knowledge of the matter. One of the think tanks analysed online purchase orders in China, showing that the military had access to advanced chips designed by the US and manufactured in Taiwan and South Korea.
Victor Shih, associate professor at UC San Diego and an expert on Chinese politics, said that the US and China are involved in tit-for-tat moves. Washington slapped sanctions on Chinese companies in the internet, bio-technology and pharmaceutical industries, while Beijing barred US arms manufacturers from investing in China. However, taking action against global advisory firms “took things to the next level,” he added.
Shih said the due diligence and advisory services industries are essential for both foreign and domestic investment in the Chinese market: “You can’t give away your money when you don’t have enough information. And we all know you will come across scams like the case of Sino-Forest Corporation or Luckin Coffee,” he said in reference to recent corporate scandals. “It’s important to invest carefully.”
“Why are there all these consulting companies in China trying to do research on China’s economy and Chinese companies? It’s not like a plot, it is just because China is important.” Shih added. “It’s very puzzling considering Beijing says that it will boost foreign investment and entrepreneurial spirit. It seems like the right hand doesn’t know what the left hand is doing.”
Following the raids on the three companies, Eric Zheng, the president of the American Chamber of Commerce in Shanghai, issued a statement saying: “We are concerned by recent reports about investigations [into] US companies in China that specialize in due diligence or consulting. It would be helpful if the authorities would more clearly delineate the areas in which companies can or cannot conduct such due diligence. This would give foreign companies more confidence and enable them to comply with Chinese regulations.”
Chinese Foreign Ministry spokesperson Mao Ning said on March 27 that Mintz was suspected to have run an illegal business and the case is under investigation.
There was no update as to whether the five Mintz staff had been released as of the time of publishing.
On May 8, Capvision published a since-removed poster on their WeChat account highlighting April’s National Security Education Day, saying that “[n]ational interests are above everything else” and the company will “completely implement the concept of national security development.”
Two days later, the firm announced that it would set up a board of compliance to implement requirements ordered by national security bureaus.
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