It was revealed today that China raided a large and well-known American company earlier this week, seizing five of its staff and closing down its operations in China. This is a big deal and I thought it important I write about it as soon as possible.
1. Factual Background on the Raid
My facts regarding this raid come from The New York Times, The Wall Street Journal, Reuters, BBC News, and The Financial Times, all of which I view as providing high level and reliable China reporting.
Today (as I write this, it is 6:45 a.m. Pacific Time, 9:45 a.m. Eastern Time, and 9:45 p.m. in China), it has been reported that the Chinese government on Monday raided Mintz Group’s offices in Beijing, detained five of its staff there, and closed down its China operations. Per its website, Mintz Group focuses on providing “background checks” on companies and people, “fact gathering” during disputes, and “internal investigations” after allegations. In other words, it is a high level internatinoal investigation firm.
Randal Phillips heads Mintz Group’s Asia operations from outside of China. He is the former chief representative in China for the Central Intelligence Agency. Per BBC News, Mr. Phillips often criticizes China:
2. Timing of and Reason for the Raid
One of the main reasons I read so many articles before writing this piece is because I wanted to see how various media put this raid in context. Most noted how the raid came on the heels of yesterday’s hearing regarding U.S. plans to force a sale of TikTok or ban it. Though that hearing came after the raid, China certainly knew before the raid how that hearing would go down.
The Financial Times (like many others) put the raid in the larger context of “deteriorating relations between Washington and Beijing, which took a turn for the worse last month following a row over a suspected Chinese spy balloon that flew over the US.”
I see this raid as yet another data point in what I have since 2018 described as a straight line decline in China’s relations with the Free World. See e.g., China’s Relations With the West: Straight Line Decline. This arrest is China punching back against the United States for its efforts to block China’s access to high-end microchips, ban TikTok, and embarass Xi for his relationship witih Putin and with Russia, and Taiwan President Tsai Ing-wen’s recently announced upcoming visit to the United States.
3. The Raid’s Likely Impacts on Your Business and Your Travels
Per the American Chamber of Commerce in China’s latest survey (taken before China’s balloon was caught hovering over the United States), U.S. businesses operating in China indicated increasing pessimism about their China prospects, with two-thirds citing rising tensions with China as the top business challenge. This raid will increase those tensions.
There are two ways this raid will likely impact your business in or with China. First, it is yet another action that will ratchet down China’s relations with the Free World. And as is nearly always true, there will be a U.S. counterreaction, and then a China reaction to that, and on it goes, with more companies likely to get caught in these cross-hairs. This is nothing new.
The other way your business will likely be impacted by this raid will be in its declining ability to get necessary information. Not only is the timing of China’s raid is not a coincidence the business of the company it chose to raid is no coincidence either. Plain and simple, China’s raid is intended to reduce the information the world gets about China. Just as the United States, Japan, Australia and the EU are increasingly seeking to block China’s access to their data (see TikTok) China too is increasingly seeking to limit foreign access to its data. China’s going after the Mintz Group sends a message to those who reveal information about China that China does not want revealed.
This is not the first time China has sent out this message. The case of British corporate investigator Peter Humphrey immediately sprang to my mind, and as per Reuters, I’m not the only one to see this link:
British corporate investigator Peter Humphrey and his American wife Yu Yingzeng, who ran risk consultancy ChinaWhys, were detained in 2013 following work they did for British pharmaceuticals group GSK.
Humphrey, who spent two years in jail for allegedly acquiring personal information by illegal means, which he denied, told Reuters that providing due diligence in China was even harder now because of a “massive tightening in access to information.”
“The foreign business community needs due diligence in order to conduct safe business, to pick the right partners and the right hires, to invest in the right companies without losing their shirt … But Beijing has made it impossible to do this,” he said in an email.
“This is at a time when Western companies need transparency more than ever,” he added.
The Financial Times also weighed in on how this raid is tied to China’s efforts to clamp down further on access to information:
A former Mintz staff member said he had noticed official attitudes towards the company harden during the pandemic, when China mostly sealed its borders and imposed strict zero-Covid controls.
“You don’t know where the red line is,” said the staff member, whose job had mostly been to translate Chinese media reports. China has detained investigators, analysts and journalists affiliated with foreign companies in the past.
By blurring the “red line” on information, China is telling companies and individuals that coming close to the line might put them at risk. This message will cause people to stay far away from the blurry line and it will mean companies will increasingly need to transact their China business in the dark, or at least in deep shade. For what this could mean for your due diligence, I refer you to this post on the importance of international due diligence.
Per Reuters, “news of the raid and detentions comes as Beijing is gearing up to hold the three-day China Development Forum . . . where executives from multinationals and representatives from international organisations will be among the more than 100 overseas delegates present”:
One U.S. business community person told Reuters the Mintz Group incident sent a “remarkable signal” that Beijing wants foreign money and technology but that it won’t accept credible U.S. firms conducting due diligence on Chinese partners or the business environment.
“Red alerts should be going off in all boardrooms right now about risks in China,” the source, who did not wish to be identified due to the sensitive nature of the matter, said.
China has said it welcomes foreign trade and investment but stressed that security comes before development.
The red alerts have already gone off and I know that because I started getting emails from clients within hours of this raid hitting the media asking how this will impact what they are doing in China. I also got an email from a company that wants my law firm to provide it with a legal risk assessment of its China business “as soon as humanly possible”. This is not a normal morning.
This raid is China doing what it always does, which is killing the chickens to scare the monkeys, with the Mintz Group as the chickens and all other foreign companies as the monkeys. Nobody really knows where and when the Chinese government will strike next, but there certainly some companies are at greater risk and some are at lesser risk.
In How to Handle China’s Rising Risks, I wrote that “China is going to get tougher on foreign companies doing business in China” and “everything foreign businesses and foreigners do will be under heightened scrutiny.”
In How to Prepare for the Worst in China and Why You Should I wrote of how foreign companies and foreigners were seeing increasing peril in China and recommended companies polish up their China exit plans, just in case:
It seems like every time I talk with serious China people these days, they want to talk about what is going to happen in China regarding treatment of foreign companies and foreigners. Many of them say they wince every time there is an announcement of a Western company planning to leave China or reduce its footprint there. As one friend of mine puts it, “The fewer foreign companies and foreigners that remain in China, the greater the chance it will be my company or my family that gets singled out for mistreatment.”
