It's riskier than ever to be a foreign business in China, as evidenced by a series of recent sanctions, detentions, and an updated anti-espionage law that has watchdogs on edge
Xie Huanchi/Xinhua via Getty Images
- Beijing recently passed wide-ranging updates to its anti-espionage laws, worrying foreign investors.
- The updated law doesn't clearly define what constitutes China's national security or interests.
- The new law follows a recent spate of sanctions, probes, and detentions into foreign firms in China.
Foreign businesses in China have faced numerous challenges like intellectual property protection and geopolitical tensions with the US — but now, operating in the country could get trickier.
On April 26, Beijing passed wide-ranging updates to its anti-espionage laws: it widened the definition of spying and banned any information transfer related to national security, among other changes.
The broadened law takes effect on July 1.
The move is causing concern among foreign businesses because it doesn't clearly define what constitutes China's national security or interests, scholars and analysts told DW and CNN in recent media reports.
Previously, the law focussed on the mishandling of state secrets — which was already an "ambiguously defined term," analysts at political risk consultancy Eurasia Group wrote in an April 28 note seen by Insider.
Even now, the terms relating to national security and interest are still "not explicitly defined," the Eurasia Group wrote.
"It was already very tough. Now, it's going to get even tougher," Alfred Wu, an associate professor at the National University of Singapore's Lee Kwan Yew School of Public Policy, told Insider. Wu attributes the expanded law to China's one-man rule under President Xi Jinping — who tends to "go too far" in addressing concerns, as evident in China's strict COVID-zero policy.
Even the US Chamber of Commerce in Beijing is worried about the impact of the updated law.
"The additional scrutiny of firms providing essential business services dramatically increases the uncertainties and risks of doing business in the People's Republic," the chamber said in an April 28 statement. "This is a matter of serious concern for the investor community and likely is as well for their local business partners in China."
The law also throws up concerns about "intimidation" tactics towards businesses, Nicholas Burns, the US ambassador to China, said at a May 2 event organized by a Washington DC-based think tank.
"This is a law that potentially could make illegal in China, the kind of mundane activities that a business would have to do to seek due diligence before you agree to a major investment deal, to have full access to economic data to make rational economic decisions," he added.
The updated law is also particularly concerning because of the recent developments surrounding foreign firms in China.
China's recent crackdown on foreign businesses is spurring concerns
In April, Chinese police questioned staff at American consultancy Bain in Shanghai.
Beijing also detained an employee of Astellas Pharma, a Japanese drugmaker for "a spy incident that touches on China's national security," said Wu Jianghao, China's ambassador to Japan, Nikkei reported on April 28. He's the 17th Japanese national to be arrested since 2014 when China passed its counterespionage law, The Japan Times reported on March 28.
In March, Chinese authorities raided the Beijing office of Mintz Group, a New York-based due diligence firm, and detained five local employees for unknown reasons. China's cyberspace administration also launched an investigation into major US chipmaker Micron for cybersecurity risks.
Back in February, China sanctioned American private defense contractors and weapons manufacturers Lockheed Martin and Raytheon Missiles & Defense for supplying arms to Taiwan, which China claims as its territory.
The developments come just as China reopened its economy after three years of COVID-19 restrictions. But they appear at odds with the country's new premier, Li Qiang, welcoming foreign businesses to "invest in China and take root in China," state-owned CCTV reported in March.
"Foreign businesspeople are very concerned," said Wu, who specializes in the political economy of China. "After all, who knows who will be arrested next."
Despite the concerns, Wu said that businesses will weigh the rewards of profits against these new risks.
"Businesses that are eager to make money may implement a 'Made in China for China' strategy," he said. "With the lure of high profits, businesses will still go to China even if it comes with risks."
The Chinese embassy in Washington, DC, did not immediately respond to Insider's request for comment sent outside regular business hours.
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