Is it becoming impossible for foreigners to do business in China?


JConduct in a clean way With a steady stream of Western executives crossing the Pacific, China is picking up where it left off before the start of Covid-19. Over the past two weeks, Tesla electric car maker Elon Musk met with Beijing officials on his first trip to the country in more than three years. At the same time, Jamie Dimon, America’s largest bank, was hosting a conference in Shanghai that brought together more than 2,500 clients. Hundreds of business bigwigs have made the same journey in the past three months. President Xi Jinping’s top officials have greeted the outbreak with the mantra, “China is back to business.”

Once the executives are in, however, many accept the position and are finding much less. In April, the government tightened already strict counter-espionage laws and, as of 2015, Wall Street JournalHe appointed China’s spymaster to oversee security threats to American companies. Officials are calling for data-related laws introduced during the pandemic, which have confused many foreign businesses, American or otherwise. Something as innocent as sharing an email signature, which is considered personal information under some interpretations of China’s data laws, can land you in hot water with a recipient abroad.

The space for foreigners to do business in China is already limited by their own US-led government’s restrictions on Chinese companies amid geopolitical tensions. More than 9,000 Chinese companies have been hit by Western sanctions, according to data provider Wire Screen. Now, Mr. Xi is tightening the business unit to move further. Worse, even careful movements left in the room can be dangerous.

In recent months, many interesting cases have rattled the spines of foreign executives. In March, five Mintz Group employees were arrested on suspicion of violating environmental laws related to data security. A month later, authorities launched an investigation into similar abuses at Bain’s headquarters in Boston.

In May, state television aired footage of police officers talking at the offices of CapeVision, an international research firm. At the JPMorgan conference, the cocktail-party conversation turned; WhisperA Chinese banker who is well-known in foreign business circles may have his prison term extended for another three months for unknown reasons. “Always acts transparently, ethically and in compliance with applicable laws and regulations,” Mintz said. “He is cooperating appropriately with the Chinese authorities,” Bain said. Capvision is committed to strictly complying with China’s national security laws.

It’s not clear why officials targeted the advisers — despite rumors swirling that the U.S. has accused China of using forced labor in Xinjiang, and the U.S. has denied advanced chips in the domestic semiconductor industry. However, the lack of transparency may be making things even colder.

Some foreigners are throwing in the towel. On June 6, Sequoia Capital, a stalwart of the Silicon Valley venture-capital industry, decided to spin off its China arm into a separate entity. June 10 Financial Times Microsoft is reportedly moving a few dozen top artificial intelligence researchers from China to Vancouver. The boss of the Swiss property manager whispered, “I don’t think so. [China] “Honestly, it’s an investment,” many expats agree. Still, for many, China is too big a prize to pass up. Those who stay here will have to learn to live with not one driving force, but two.

Reverse trade

Mentz, Bain and Kapiwicz’s fatigue struck a nerve in foreign boardrooms as they targeted investigators, consultants, lawyers and other advisers for their expertise in gaining a foothold in faraway places. Customers often register such intermediaries to understand who they are transacting with, identify any hidden risks, and smooth out transactions.

Communist authorities are always on the lookout for such work and have enacted laws on information sharing and state secrets which, if enforced, could be used to curb it. Experts say that this year’s performance is becoming more common. In areas like Xinjiang and chipmaking, corporate investigations now seem completely off-limits. Details of critical inputs to the broader technology sector—potential targets of new U.S. sanctions—are increasingly classified as state secrets. So can the personal data of government-linked businesses, who are often in the sights of hard-working organizations. This list of prohibited topics cannot be comprehensive. And it will definitely be longer.

Wind The China Information Agency, which is hired by banks and brokerages around the world to provide financial information on Chinese companies, has been told by officials to stop providing some of its services to foreigners. So does Qichacha, another corporate information provider. A few China analysts working for foreign companies have been visited by authorities and pressured to present a rosier picture of China. Fears by Chinese authorities that regulatory disclosures in the U.S. could reveal secrets about Didi Global’s technology suppliers and the whereabouts of emotional passengers forced the ride-hailing company to pull out of New York last year.

Things still get thorny when corporate hackers try to dig beyond information that is publicly available or voluntarily provided by companies. Asking too many questions about a company with invisible connections to powerful officials can be especially dangerous for a nosy consultant. As one consultant put it, such questions simply “shouldn’t be asked.” Many now reject requests for “enhanced” due diligence, which can leave clients in the lurch.

Even the humdrum administrative and legal legwork required in most business cases, from writing emails to exchanging bank account information, is being intensified. Historically, foreign companies have been reluctant to release their intellectual property to their Chinese rivals; But now they are angry about the information coming to them from their Chinese partners, said Diana Choileva of London-based research firm Enodo. The head of the international law firm said he could not technically correspond with his Chinese counterparts. When the Chinese company in question has ties to the state, as many do, any information can be classified as a state secret.

Foreign companies are scrambling to explore this dangerous new environment. Some consultants are considering developing software that analyzes all communications, including contracts and email, to avoid accidental communications. They may need to hire and train people to keep any computer input confidential. Experts compare it to anti-money laundering systems that banks and other international organizations began implementing a decade ago.

Many Western companies have begun to prepare “action plans” on how to deal with the new threats. These are prepared by in-house counsel or outside law firms, often at the behest of regional offices of international companies seeking to demonstrate their readiness for headquarters in the US.

The breadth and depth of the plans make them different from the typical business continuity plans companies have had in the past, said Benjamin Kostzewa of the law firm Hogan Lovells. They are based on an extensive survey of fast-changing Chinese laws on information, intellectual property and national security, as well as the same protean American restrictions. Their provisions will be evaluated as much as possible by any Chinese companies and individuals.

If a company is suddenly forced to leave China, the plans should consider contingencies such as reviewing office leases, employment contracts and other legal obligations. Companies are more cautious about sending executives to China. One mining executive explains how anyone can preempt a visit to the mainland by holding lengthy meetings with company lawyers to determine what to do in the event of an arrest or other contact with Chinese authorities. Without such training, according to the executive, the compliance department will not sign off on the China trip.

Partnerships between foreign and Chinese companies are restructuring how they process and store data to ensure compliance with China’s data laws, a consultant explains. Many joint ventures operating as a single unit are distributing data-processing so that the foreign partner does not have access to anything that could be considered a state secret. Any Chinese intellectual property is hosted on Chinese servers.

In the face of conflict between China and the West, there is growing concern that the currencies of many countries could be seized or frozen, said Mark Williams, a researcher at Capital Economics. In response, consultants say some foreign companies are putting in place corporate structures that reduce their overall financial exposure to the country and capital controls. One scam is to set up new companies in China that use money borrowed from Chinese banks to buy assets owned by the foreign firm’s original Chinese branch. That parent company transfers the sales overseas. If the assets are seized, the liabilities are placed with the Chinese banks, not with the foreign international or the bank.

Such arrangements have been made in the past four years, thanks to a series of changes in the law, and a relaxed requirement to grant loans to newly created foreign entities. Although the structures remain rare for now, some counselors see them as a sign of declining confidence. This confidence is likely to be exacerbated by foreign companies’ determination not to give up on their Chinese dream. They must comply with Western sanctions and, at the same time, China’s increasingly tough laws and Mr. Xi’s desire to control cross-border information flows. For the system to work, both China and the West must turn a blind eye. China was willing to do this for the sake of economic growth. no longer.


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