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Is it becoming impossible for foreigners to do business in China?

J.pure swell With a steady flow of Western cadres across the Pacific, China is recovering from the hiatus it had before the outbreak of COVID-19. In recent weeks, Elon Musk of electric car maker Tesla met with officials in Beijing for the first time in more than three years. At the same time, Jamie Dimon of JPMorgan Chase, America’s largest bank, was hosting a conference in Shanghai that attracted more than 2,500 clients from around the world. Hundreds of business moguls have taken similar trips over the past three months. High-ranking officials of President Xi Jinping have greeted them with slogans after the pandemic-induced hiatus.China resumes business

But once the executives take root, many find the place less welcoming. The government said in April that he had already tightened tough anti-espionage laws, wall street journal, put a Chinese spymaster in charge of cracking down on security threats by American companies. Authorities have invoked vaguely worded data laws introduced during the pandemic that have embarrassed many foreign companies, both U.S. and others. An innocuous act like sharing your email signature, which is considered personal information under some interpretations of China’s data law, with overseas recipients can do you a disservice.

The room for foreigners to do business in China was already limited by their own government regulations. American-led, putting pressure on Chinese companies amid rising geopolitical tensions. More than 9,000 Chinese companies are affected by Western sanctions, according to data provider Wirescreen. Now, Mr. Xi is further narrowing the room for corporate maneuvering. Worse, even being cautious in the remaining room can spell disaster.

A spate of horrific incidents over the past few months sent chills down the spines of foreign executives. In March, five local employees of the Mintz Group, an American due diligence firm, were arrested on what many suspected of possible violations of local laws on data security. A month later, authorities opened an investigation into Boston-based consulting firm Bain, apparently for similar violations.

In May, state television aired footage of police raiding the offices of multinational research firm Capvision. At JP Morgan’s conference, cocktail party chatter changed, sottovoce, the case of a Chinese banker well-known in the foreign business world whose detention was to be extended for an additional three months for unspecified reasons, as revealed in the evening. Mintz said the company “always operates transparently, ethically and in compliance with applicable laws and regulations.” “We are cooperating with the Chinese authorities as necessary,” Bain said. Capvision pledged to resolutely abide by China’s national security rules.

It’s unclear why the authorities targeted the advisers, but rumors have swirled that they might have something to do with reconnaissance in Xinjiang. US accuses China in Xinjiang Uighur Autonomous Region. forced laborand even in the domestic semiconductor industry, which America hopes to drag down by withholding advanced chip. But the lack of clarity may make things even more chilling.

Foreigners are also throwing in towels. On June 6, Sequoia Capital, a leading firm in Silicon Valley’s venture capital industry, decided to split from its China unit and become a separate company. On June 10th, financial times Microsoft has reportedly moved dozens of its brightest artificial intelligence researchers from China to Vancouver not only to avoid poaching by Chinese tech giants, but also for fear of harassment by Chinese authorities. The boss of a Swiss asset management firm whispered: [China] It’s an investment, to be honest. ” Many foreigners agree. Yet for most of them, China is still a big prize they can’t part with. Therefore, those who maintain the status quo must learn that he lives with two superpowers rather than one brute force superpower.

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Mintz, Bain and Capvision’s woes were on the nerves of foreign boards. Because they targeted investigators, consultants, lawyers and other advisers who rely on their expertise to find their feet in remote locations. Customers typically turn to such intermediaries to understand their counterparties, identify hidden risks, and facilitate transactions.

Communist authorities have always kept a close eye on such work, enacting rules on data sharing and state secrets that could be used to curb them if enacted. Practitioners report that enforcement has become more common this year. In places such as Xinjiang and semiconductor manufacturing, business research now seems to be completely over the top. Details about significant inputs to the broader technology sector could be subject to new U.S. sanctions and increasingly appear to be state secrets. The same is true for personal information about state-affiliated business people, which often come to the attention of due diligence firms. This list of prohibited items is not considered to be exhaustive. And it’s almost certainly getting longer.

Wind The Information, a Chinese data company hired by banks and brokerage firms around the world to provide financial information for Chinese companies, ostensibly for possible violations of data security regulations. We have been instructed by the authorities to stop providing some services to foreigners. So does Qichacha, another corporate data provider. Several Chinese analysts working for foreign companies were visited by officials and pressed to present a brighter picture of China. Concerns from Chinese officials that disclosures by U.S. regulators could reveal secrets about Didi’s technology suppliers and even the whereabouts of sensitive passengers led to the delisting of the ride-hailing company from New York last year. It was powerful enough to drive into

Things get even more complicated when corporate intruders attempt to mine information beyond what is publicly available or volunteered by the company. Asking too many questions about companies that turn out to have invisible ties to those in power can prove especially dangerous for unsolicited advisors. One adviser said such questions simply “shouldn’t be asked.” Many companies now refuse requests for “enhanced” due diligence, which can leave clients confused.

Even the low-key administrative and legal tasks required for most business transactions, from composing emails to exchanging bank account information, are becoming difficult. Foreign firms, historically most concerned about leaking their intellectual property to Chinese rivals, now worry about the flow of information from Chinese partners to them, according to a London research firm. Enodo’s Diana Choileva points out. The president of a global law firm said it had lost technical contact with its Chinese partner. Like many companies, if the Chinese company in question has ties to the state, any of that information could be classified as a state secret.

Foreign companies are scrambling to navigate this dangerous new environment. To avoid accidental data leaks, some are considering developing software that parses all exchanges, including contracts and emails, one adviser said. You’ll probably need to hire and train people to review data flagged as sensitive by the computer. Experts compare it to anti-money laundering systems that banks and other multinationals began implementing more than a decade ago.

Many Western companies are also beginning to formulate “action plans” on how to deal with the new risks. These have been devised by in-house lawyers and outside law firms, and are often at the request of local offices of multinational corporations eager to show that they are ready for their US headquarters. .

Benjamin Kostorzeva of the law firm Hogan Lovells said the scope and depth of the plan differed from the typical business continuity plans companies have developed in the past. They are based on extensive research into rapidly changing Chinese laws and equally protean regulations in the United States, including data, intellectual property and national security. As much as possible, the provisions are determined based on the evaluation of the Chinese companies and individuals involved.

Contingencies considered in the plan include reviewing office rental agreements, employment contracts and other legal responsibilities should companies be forced to leave China abruptly. Companies are also cautious about sending executives to China. One mining executive now holds lengthy meetings with the company’s lawyers before traveling to mainland China to discuss how to act in the event of an arrest or clash with Chinese authorities. said there is. Without such training, the compliance department would not approve a trip to China, the executive said.

Meanwhile, joint ventures between foreign and Chinese companies are restructuring how information is processed and stored to ensure compliance with China’s data laws, advisers say. Many joint ventures, ostensibly operating as a single unit, share data hosting to ensure that foreign partners do not hold anything that could be considered state secrets. All Chinese intellectual property is stored on Chinese servers.

Mark Williams of research firm Capital Economics said there is also growing concern over the threat of multinationals having their funds seized or frozen in the event of a conflict between China and the West. . In response, advisers said some foreign companies have adopted corporate structures that reduce their overall financial exposure to the country and capital controls. One strategy is to set up a new company in China and use funds borrowed from Chinese banks to buy assets held by the former Chinese subsidiary of the foreign company. The original company then remits the proceeds overseas. If these assets were to be seized, the liabilities would be with Chinese banks, not with foreign multinationals or overseas banks.

Such an arrangement was made possible thanks to a series of rule changes over the past four years that relaxed lending standards to newly established foreign companies. So far, such structures remain rare, but some advisers see them as signs of a deterioration in confidence. That confidence is almost certain to deteriorate further as foreign companies determined not to give up on the Chinese dream find themselves in an impossible situation. They must comply with Western sanctions, but also with ever-tighter Chinese laws and Mr. Xi’s desire to control the flow of information across borders. For this system to work, either China or the West would have to turn a blind eye. China used to be happy to do this for economic growth. more than this.

https://www.economist.com/business/2023/06/11/is-doing-business-in-china-becoming-impossible-for-foreigners Is it becoming impossible for foreigners to do business in China?

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