Foreign Companies in China Face Intense Scrutiny and Pressure – What You Need to Know

by Joshua Brown
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In China, President Xi Jinping’s government is now controlling businesses more strictly. As a result of this increased control, many foreign companies are facing challenges and difficulties from investigations related to corruption and security. This makes it harder for companies to receive investments and support during the pandemic.

This week, the police asked a few people in Bain & Co.’s Shanghai office some questions. They didn’t say what it was about. Last month, the police arrested five workers from Mintz Group’s Beijing office. Also last month, someone who works at a Japanese drug company was taken away and the government looked closely into Micron Inc., which makes memory chips.

The actions taken by the government do not agree with their goal of getting people to invest in China even though they want more control over the economy. Companies are starting to invest in places like Southeast Asia, India, and other countries instead of investing in China.

The European Union Chamber of Commerce in China stated on Friday that the actions taken by China to create more business opportunities and attract foreign investors may send a confusing message.

Right now, the way China is talking to Washington, Europe and Japan is not going very well because they can’t all agree on human rights, Taiwan, security and technology. It isn’t really clear why this argument started in the first place but Chinese companies are getting into big trouble.

Xi, China’s leader, is working hard to make sure the country’s ruling party has control over business owners, get rid of corruption and stop using foreign technology and ideas.

In March, the Beijing office of Deloitte Touche Tohmatsu was fined 211.9 million yuan (which is around $30.8 million) because they did not thoroughly audit China Huarong Asset Management Co., which is owned by the government. This happened after a person who used to be in charge of Huarong received the death penalty for taking bribes in 2021.

The government has made it more difficult for people to get information about companies and the people who work there. This means that law and consulting firms like Bain & Co. and Mintz Group might not be able to figure out if someone is doing something wrong or if a business deal will be successful.

Bain & Co. said in a statement that Chinese authorities are asking their employees questions in Shanghai, and they are cooperating with them.

This week, China’s government changed a law so they can access electronic information. This means they have the power to look at any documents, data and materials that could be related to keeping their country safe, said Xinhua News Agency. They didn’t say exactly what would count as a security risk though.

For a long time, employers have warned their workers about going to China with their computers or phones if those gadgets contain sensitive data. That’s because the Chinese government might take those devices away, or those items may get stolen by spies who want to find business secrets.

Recently, an employee from Astellas Pharma Inc., a Japanese company, was taken into custody over suspicions of spying. Japan’s Foreign Minister spoke up about this issue when he went to Beijing in the same month.

Recently, the Chinese government said they would check if the technology and production of Micron, a big company that supplies to China’s factories, is safe enough under their cybersecurity law. They are also looking into huge businesses such as Alibaba and Didi Global Inc. to see how much power they have and whether their data is secure.

Didi Global, a company, switched the place where it sold its stocks from New York to Hong Kong last June. But then the very next month, Didi Global was fined for not taking good care of some customers’ information – an amount of 8 billion yuan which is equivalent to $1.2 billion.

This penalty happened as the Chinese government is trying to undo the decrease in international companies coming into China. The Chinese officials want companies that specialise in electric cars and other industries to come inside and share their knowledge while competing at the same time to make sure Chinese companies are getting better.

Businesses said that a lot of global companies were moving their investments to other places like Southeast Asia, India and the US because it was becoming difficult for them to go to China. Additionally, costs were much higher and extra rules made things even harder for them.

Last month, the country’s most important economic leader, Premier Li Qing, talked to business people such as Apple Inc.’s CEO Tim Cook and promised that foreign firms would have plenty of opportunity in China.

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