Introduction
The recent raid on the Beijing office of The Mintz Group – a corporate intelligence firm – and the detention of five of its local-national employees has sent chills through the investigative world. In a statement the Mintz Group said it “has not received any official legal notice regarding a case against the company” and its five employees are being held without any known charges.
Despite China loudly proclaiming it is “open for business” now that Covid restrictions have been loosened, the raid on the Mintz Group, as well as a similar raid on Bain & Co.’s office in Shanghai, shows how China is becoming an ever-more restrictive place for global commerce. Additionally, China’s augmented counter-espionage law has rattled businesspeople and executives who are concerned about the vague wording and broad reach of the law, which will be implemented on 1 July.
A new era of global relations with China
The story of these raids on Western businesses isn’t receiving the same level of scrutiny as the recent Chinese spy balloon fiasco, but it is a compelling data point further illustrating that we are living in a new era of global relations with China, and its implications go beyond The Middle Kingdom alone. The world is increasingly shaping itself into what could be a decades-long struggle of authoritarian states versus democracies. As that struggle unfolds, we are seeing a new sort of iron curtain slowly descending on the business world, one that is less about restricting the movement of people but more focused on controlling information.
Information is the lifeblood of any business. Transparency leads to smart planning and better decision making. A lack of it leads to miscalculations, corruption, and serious business risks. Information is the currency of the work that we as corporate investigators do. When we are blocked from a source of information, we are experienced at finding data in other ways. But when we are faced with governmental restrictions that stifle our abilities to access public records; when the media is censored and/or coopted by the state; and when simply operating in an authoritarian state could lead to the imprisonment of staff, the risks we help clients navigate go from challenging to virtually impossible.
This isn’t the first time China has cracked down on investigators. In the early 2010s, a wave of short-sellers – led by the research firm Muddy Waters and their takedown of the Chinese forestry company Sinoforest – exposed rampant fraud amongst publicly-traded Chinese companies. In response to this wave of fraud exposure China didn’t focus on addressing the actual problems with its domestic companies. Instead, it clamped down on investigators and their ability to collect information.
Inevitable: Understanding Guanxi
Investigative firms adapted, calibrating their approach to collecting information and managing the expectations of their clients. Because collecting human intelligence in China has become dangerous, open-source research and local experience have become much more important. Having experienced, Chinese-speaking staff reviewing records and websites is more essential than ever. But it’s also essential to have staff that can connect the dots. If a Chinese company has half their website dedicated to their service to the Chinese Communist Party that should tell you something. Understanding Guanxi – the always-important idea of connections in Chinese society – is another vital concept when it comes to understanding the business landscape.
Any German business looking to enter or expand in China will need to ask: how can we feel comfortable doing business where we can’t properly understand counterparty risk? How can we partner with a certain company when we can’t be sure of how politically connected its executives are and how the government views those individuals? And how can we be sure that our employees won’t be swept up in Chinese national security concerns when conducting standard market intelligence collection or many other business activities that are so normal in most of the world?
The recent detention of Bao Fan – founder of the investment bank China Renaissance – shows the danger of China’s seemingly capricious restrictions on its business community, as did the detention of Jack Ma before that. The action against our colleagues in The Mintz Group – whose job it is to help its clients navigate these tricky waters – should send a shudder through any Western executive seeking to avoid doing business with politically exposed or corrupt individuals in China. Considering China is Germany’s top trading partner, this is an increasingly urgent issue in the German business community.
Doing the type of work we do in China has been fraught for many years. But like the many challenging countries where we operate, collecting information to help our clients manage risk, savvy investigators tend to learn where the line is and carefully avoid crossing it. For instance, in years past China-based businesses – especially investigative firms – would run debugging operations to find and remove listening devices. Because of China’s increasingly totalitarian nature removing such bugs is now seen as a provocation. Businesses must currently calibrate what they talk about and where they speak in China to avoid being spied on by the authorities.
Under pressure: Democracies and the free press
As China becomes increasingly assertive on the global stage and attacks the very notion of democracy, autocrats around the world are being emboldened to crack down on the free flow of information in their countries as well. We can see this in part in the increase in the detention of journalists globally, which Reporters Without Borders estimates was up over 13% last year (with over 533 journalists detained). China will set the tone for such systems of government to start by placing restrictions on the press and social media, and then moving further to control the business community to make it an appendage of the state’s worldview. In Russia, for instance, most Western businesses have fled because of its odious war with Ukraine, and the recent jailing of Wall Street Journal correspondent Evan Gershkovich illustrates the country’s disdain for the free press. Turkey is another example, where a previously free press has been restricted, and where we as investigators have seen the business environment become a minefield of dangerous political sensitivities that increase the cost of and risks involved with doing business there.
When the Cold War ended at the dawn of the ’90s businesses had vast new markets opening up for investment. As the world increasingly aligns itself into antagonistic blocs, that business landscape is unfortunately shrinking before our eyes. Corporate investigators are the canary in the coal mine, so to speak, when it comes to information and risk management. We’re here to tell you those risks are going up as access to information goes down.