Bain Consulting Firm is the latest target of Chinese crackdown

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In the latest official investigation of a prominent US company in China, authorities this month visited the offices of US management consultancy Bain & Company in Shanghai to question its employees.

In a written statement, Bain said it is “cooperating with Chinese authorities as appropriate” but declined to comment on the nature of the investigation and whether his employees’ phones and computers were seized during the visit.

Bain’s questioning came less than a month after authorities detained and closed down five Chinese who worked in Beijing for the Mintz Group, a US consulting firm with 18 offices around the world. The five Chinese nationals were detained overnight before their families were notified that they had been detained. China’s foreign ministry later said the company was suspected of operating illegally.

Mintz did not have an immediate response Thursday to a request for comment on whether any of his five employees had been released.

Companies that buy or invest in a factory or other company typically hire a company like Mintz to conduct what is called a due diligence review, which checks that there are no hidden issues related to the target company. Bain, on the other hand, provides business advice: Companies share details of their sales, operations, and long-term plans with Bain to gain an independent perspective on how to improve.

The raid on Bain’s Shanghai operations is the latest sign of the strained economic relationship between the US and China. Beijing is particularly angry at the restrictions imposed by the Biden administration preventing the sale of critical semiconductor-making equipment to China. Without critical chip-making tools, China’s semiconductor industry, already considered a technology laggard, will struggle to bridge the gap with leading companies and access advanced technologies used in everything from military equipment to consumer electronics .

Beijing is also dissatisfied that US law enforcement has arrested two men in New York City on charges of helping to run an unauthorized Chinese police station to intimidate and control Chinese citizens. US prosecutors also filed charges against 42 Chinese police officers and other officials, accusing them of various acts against dissidents in the United States. The Department of Public Security on Wednesday accused US prosecutors of “malicious fabrication” and “complete fabrication” of the charges.

“If the US continues to go its own way, China will resolutely block it to the end,” the ministry said.

Treasury Secretary Janet L. Yellen last week called for a constructive and healthy economic relationship between the two countries in a speech that appeared aimed at lowering the temperature in the trans-Pacific relationship. She specifically said that the US does not need to “decouple” its economy from China and that Chinese growth does not have to come at the expense of US economic leadership.

The US Embassy in Beijing and the US Chamber of Commerce in Shanghai declined to comment on the questioning of Bain employees.

China is targeting consulting firms after the country’s top legislative body approved a revised espionage law that expands the list of activities that could be considered espionage. The amended counterintelligence law, passed Wednesday, has alarmed foreign companies that normal business activities can expose executives and employees of foreign companies to espionage.

It is common business practice for companies to research local markets and conduct background research on potential partners or competitors before investing money.
They often rely on consulting firms like Mintz and Bain to help with that.

China’s scrutiny of leading US companies is sending a mixed message after China’s economic policymakers pushed for more foreign investment last month. Foreign business has become concerned that the economic pragmatism that helped build the world’s second-largest economy has faded from the ideological and national security priorities of the Chinese Communist Party and its leader, Xi Jinping.

Foreign companies in particular have been hampered by China’s draconian “zero-Covid” policies over the past three years, which have regularly disrupted businesses, brought economic growth to a near halt and prevented foreign executives from visiting workers and operations in the country.

Li Qiang, China’s premier, told a forum of foreign business leaders last month that the country aims to create a business environment “that is market-oriented, governed by law and internationalized.” It will continue to open the economy, he said, “regardless of how the international situation changes,” according to state-owned CCTV News.

It’s not clear whether Beijing is targeting the actual consulting firms or the high-profile clients they advise in China’s tough business environment.

The Financial Times previously reported, citing people familiar with the situation, that Chinese police raided Bain’s offices several times, removing computers and phones, but not detaining any employees.

Police raids on US consultancies in China pose difficult legal dilemmas for the firms. The Chinese government sometimes imposes gag orders in connection with raids.

Multinationals typically share sensitive information with consulting firms under confidentiality agreements that require clients to be notified if their data has been compromised. Thus, businesses that are raided face conflicting legal obligations to the Chinese government and their customers.

Many international companies operating in China try to shield their computer systems outside of China to limit potential losses of trade secrets and other valuable data.

Claire Fu contributed research.

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