"China has warned of decoupling and “de-risking”. But its recent actions may get just that" 26 May 2023

[...] The Chinese government has launched a campaign of investigations and intimidation targeting Western due diligence firms operating in China. In March, Chinese police closed the office of the US consulting firm Mintz, and detained five of its staff members for questioning. In April, police raided the Shanghai offices of Bain & Company, management consulting firm. In May, police launched a national security investigation into Capivision, a consultancy firm, raiding their offices in Shanghai, Beijing, Suzhou, and Shenzhen. 

A state TV news program made clear that this was a “coordinated” effort related to anti-espionage and national security, and not just a one-off action by a local police department. [...]

What makes this campaign against foreign due diligence firms particularly ominous is that it comes just as China promulgated its revision of the Counter-Espionage Law. The new revisions expand the scope of the previous law and perhaps most notably, the new revision now includes language that defines “acts of espionage” as “to steal, pry into, purchase or illegally provide…documents, data, materials, or items related to national security or interests” in addition to the previous “state secrets [and] intelligence.” [...]

And yet, the changes to the law, combined with the coordinated raids, signal a new intent by the party-state to limit due diligence efforts.  

Meanwhile, in many jurisdictions across North America and Europe, new requirements are being rolled out that build on the global standard, the UN Guiding Principles on Business and Human Rights, and mandate companies to conduct human rights due diligence, a process in which companies must identify, prevent, mitigate, and account for how they address their human rights impacts. [...]

Why is all this significant?

Although these new legal changes are global in scope, and the impetus to enact them is not focused on China per se, the laws are bound to affect any business operating or sourcing from China, and yet, China has punished firms for carrying out due diligence the sort of due diligence envisioned by the laws.

[...]

However, a new focus on espionage will undoubtedly create fear and dissuade firms from conducting on the ground investigations. [...] Foreign companies operating or sourcing from China must be prepared for uncertainty ahead.