Bain Consulting Firm Is New Target Of China Crackdown

In the latest official scrutiny of a top American business in China, authorities visited the Shanghai offices of US management consulting firm Bain & Company this month to question its employees.

In a written statement, Bain said it was “cooperating as appropriate with the Chinese authorities,” but declined to comment on the nature of the investigation and whether his employees' phones and computers had been confiscated during the visit.

The checks in Bain come less than a month after authorities detained five Chinese nationals who worked in Beijing for the Mintz Group, an American consulting firm with 18 offices around the world, and closed the branch. The five Chinese nationals were held overnight before their families were notified they had been detained. China's foreign ministry later said the company was suspected of engaging in unlawful business operations.

Mintz did not immediately respond to a request for comment Thursday about whether any of its five employees had been released.

Companies that buy or invest in factories or other companies typically hire businesses like Mintz to perform what is known as a due diligence review, checking to make sure there are no hidden issues involving the target company. Bain, in contrast, provides corporate advice: Companies share details of their sales, operations, and long-term plans with Bain to gain an independent perspective on how they can improve.

The raid on Bain's operations in Shanghai is the latest sign of strained economic ties between the US and China. Beijing has been deeply upset by restrictions imposed by the Biden administration that prevent sales of critical semiconductor-making equipment to China. Without a critical chip-making tool, China's semiconductor industry, already seen as lagging behind in technology, will struggle to close the gap on leading firms and gain access to cutting-edge technologies used in everything from military equipment to consumer electronics.

Beijing is also unhappy that US law enforcement authorities have arrested two men in New York City, accusing them of helping run an unauthorized Chinese police outpost to intimidate and control Chinese citizens. American prosecutors also filed indictments against 42 Chinese police officers and other officials, accusing them of carrying out various acts against dissidents in the United States. The Ministry of Public Security accused US prosecutors on Wednesday of “evilly fabricating” and “totally fabricating” the allegations.

“If the US continues to go its own way, China will resolutely fight it to the end,” the ministry said.

Treasury Secretary Janet L. Yellen called for a constructive and healthy economic relationship between the two countries in a speech last week that appeared aimed at lowering the temperature in trans-Pacific relations. He specifically said the US did not need to “decouple” its economy from China and that China's growth did not have to come at the expense of US economic leadership.

The US Embassy in Beijing and the American Chamber of Commerce in Shanghai declined to comment on the Bain employee's questions.

China's targeting of advisory firms comes as the country's top legislature approved a revised espionage law that expanded the list of activities that would be considered espionage. The amended counter-espionage law, passed on Wednesday, has worried foreign businesses because normal business activities can subject executives and employees at foreign companies as spies.

It is common business practice for companies to investigate local markets and conduct background research on potential partners or competitors before investing money.
They often rely on advisory firms like Mintz and Bain to help with the job.

China's scrutiny of top US companies sent mixed messages after China's economic policymakers pushed last month for more foreign investment. The foreign business community is increasingly concerned that the economic pragmatism that helped build the world's second-largest economy is taking its place behind the ideological and national security priorities of the Chinese Communist Party and its leader, Xi Jinping.

Foreign companies have been especially thrown off by China's draconian “zero-Covid” policies over the past three years that have frequently disrupted business, brought economic growth to a virtual halt, and prevented overseas executives from visiting employees and operations in the country.

Li Qiang, China's prime minister, told a forum of foreign business leaders last month that the country is striving to create a “market-oriented, law-regulated and internationalized business environment.” It will continue to open the economy, he said, “no matter how the international situation changes,” he said State owned CCTV news.

It is unclear whether Beijing is targeting actual consulting firms or the high-profile clients they advise in China's difficult-to-navigate business environment.

Finance Time previously reportedciting people familiar with the situation, that the Chinese police had raided Bain's office several times, taking away computers and phones but not detaining any employees.

Police raids in China on an American advisory firm pose a difficult legal dilemma for the firm. The Chinese government sometimes enforces gag orders in connection with the raids.

Multinational companies typically share sensitive information with advisory firms under nondisclosure agreements that require clients to be notified if any of their data is compromised. So the raided companies face conflicting legal obligations with the Chinese government and their clients.

Many global companies operating in China try to shut down their computer systems outside of China to limit the potential loss of trade secrets and other valuable data.

Claire Fu research contributions.