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Beijing raids consultancy, State-sponsored media warns more to come

Retaliation or national security?

Beijing sent a message to foreign businesses this week when it launched an investigation into Shanghai-based Capvision Partners on the grounds of national security, accusing the consultancy firm of failure to prevent espionage.

News broke via state-sponsored media on Monday night that authorities had simultaneously raided the consultancy's branches in Shanghai, Beijing, Suzhou and Shenzhen. In Suzhou, officials questioned employees while searching and seizing items from the office.

State-sponsored broadcaster China Central Television (CCTV) reported that the raid led to the arrest of a senior researcher from a large state-owned enterprise in China – for providing Capvision's foreign clients with intelligence.

The news outlet portrayed the situation as an East versus West conflict, as translated from Chinese:

In recent years, certain Western countries have increasingly engaged in intelligence activities aimed at stealing confidential information in key areas such as military, defense industry, economy, and finance in order to implement strategies of containment and suppression against China.

According to state broadcaster Jiangsu Television, a Suzhou State Security Bureau police officer accused consultants and investigation firms like Capvision of undertaking foreign-related projects and contacting individuals with access to state secrets, both science and defence related, in exchange for money.

The police officer reportedly said state authorities would continue to crack down on consulting and other activities in accordance with laws such as the Anti-Espionage Law.

Last month Beijing expanded Anti-Espionage Law's definition of spying and banned the transfer of national security related information. Amendments to the Law also expanded search and seizure powers as well as entry and exit bans to the Middle Kingdom. Those amendments, however, aren't scheduled to take effect until July 1.

Chinese authorities have questioned other firms in recent months, including Bain & Company and Mintz Group.

Operational scrutiny has also fallen on businesses outside of consulting. US memory vendor Micron was recently put under investigation for "security risks caused by hidden product problems" – an allusion to China's suspicion the Idaho-based firm's chips have back doors.

The move comes as Sino-US tensions continue to deteriorate. Some experts have speculated that the crackdown on foreign companies is at least partly in retaliation for trade sanctions from the US and allies.

But despite an increasingly worrisome climate for foreign businesses, most still seem keen to access the Middle Kingdom – at least when it comes to Big Tech. In late March, Apple, Samsung, Qualcomm and others attended the Beijing-organized 2023 China Development Forum where they spoke positively of the country's potential.

On Monday night, Capvision's official WeChat page responded to the raid and promised to "firmly implement national security development" while taking a leading role in guiding the consultancy industry. ®

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