Murphy's Law: China Harasses Foreign Investment it Encouraged


March 13, 2024: China has been encouraging foreign investment and foreign firms opening offices in China. At the same time China makes mistakes and blames foreigners because they tell their company management back in the United States what is going on in China. Now China has decided that such accurate reporting is illegal because it makes China look bad. China fined a foreign consulting firm $1.5 million for such accurate reporting of the problems Americans firms are now having in China. In another case China arrested five Chinese working for a foreign firm and charged them with espionage.

China has raided seven American businesses in Beijing and arrested employees on suspicion of espionage. China has cracked down on foreign businesses even as it seeks foreign investment.

The American ambassador revealed details of China’s persecution of American firms and accusations of espionage. For the ambassador this is a troubling trend for Americans who want to do business in China. The Ambassador points out that the Chinese claim that China is open for business and want American, Japanese and firms from other countries in China, but in the last year China has raided seven American businesses. The Chinese police enter these businesses and shut them down and the government later accuses the Americans of reporting back to the United States that China has been criticizing and disrupting American businesses in China.

China has been particularly harsh on American Mintz Group, which was raided, and five Chinese members of staff were detained. Mintz confirmed the detention of its employees, the closure of its China business and that it was fined over a million dollars by the Chinese government.

In May 2023, China's state TV aired a program showing a raid of the American consulting firm Capvision, and boasting about how China was cracking down on foreign firms that say bad things about China. This was ironic because Capvision is in the business of telling its worldwide clients what the situation is in various countries and which ones are open to foreign investment and which are not. Capvision accurately reported that China claims to be friendly to foreign investment but is often not friendly at all and makes life miserable for the foreign firms. After its latest problems with the Chinese government, Capvision said it would abide by national security rules but refused to elaborate.

In mid-2023 China expanded its counter-espionage law to include a ban on transferring outside China any information related to national security. China also broadened the definition of spying. It appears that someone in China's Ministry of State Security read the novel 1984 as a how-to work of nonfiction.

An example of this are new Chinese rules that encourage accusing foreigners, especially Americans, of espionage for engaging in practices that are perfectly legal and acceptable everywhere else in the world. In other words, reporting to a U.S. based consulting firm, verbally or in writing, accurate information about the current attitudes of the Chinese government towards foreign businesses operating in China is dangerous because current Chinese attitudes are hostile and paranoid. Even when an American firm engages in the standard due diligence on a Chinese company's finances, before a decision can be made about investments or joint ventures, reporting anything negative could be considered spying under the new Chinese security laws.

It appears that China wants to control the export of data about the Chinese people and Chinese companies. Currently China is seeking to halt any reports on Chinese businesses that are negative, even if such reports are accurate. China's Ministry of State Security or MSS has called on the Chinese to join counter-espionage efforts by reporting, via tip lines, suspicious activity. The MSS promises to commend those reporting accurate but derogatory comments and reward them.

The MSS also claims it has uncovered two Chinese citizens spying for the US Central Intelligence Agency, detailing how the accused were recruited and subsequently noticed and placed under investigation.

The US National Counterintelligence and Security Center reports that since 2023 China viewed outbound flow of data as a national security risk, and that the new and existing laws could compel companies' locally employed Chinese nationals to assist in Chinese intelligence efforts.

The crackdown on imaginary spying has discouraged further foreign investment in China, which China needs because the economy continues to have problems regaining growth and momentum after years of disruptions because of the disruptive pandemic lockdowns related to covid19.

In 2023 China's foreign direct investment fell 82 percent to $33 billion. This was the lowest level of investment in China by foreign companies in 30 years. In the last three months of 2023 foreign cash outflows exceeded inflows by $17.5 billion. This never happened before and was an indicator of how bad economic conditions have become in China.




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