‘The full treatment’: Beijing sends a message with Capvision raid

With the primetime broadcast of a phalanx of officers invading an office in Shanghai and interrogating consultants this week, Beijing sent a clear message — beware of sharing information with foreigners.

The 15-minute state television report on a national security investigation into expert network group Capvision is the latest chilling signal for consultants and foreign businesses in China.

Billed by state media as part of a nationally co-ordinated campaign to clean up the consulting industry in the world’s second-largest economy, it follows other raids in recent weeks on blue-chip US firm Bain & Company and due diligence group Mintz.

The campaign is making it more difficult than ever for foreign investors to glean even basic information on potential acquisitions, Chinese partners or suppliers. That is at least partly by design as Beijing also methodically curtails foreign access to once openly accessible public data such as academic theses and business ownership records.

The clampdown comes despite a charm offensive by Li Qiang, China’s second-ranked leader after President Xi Jinping, to woo foreign and private investors back to the country after coronavirus pandemic controls crushed growth last year.

“It’s sending chills to the whole [foreign business] community,” said Ker Gibbs, the former president of the American Chamber of Commerce in Shanghai. “The lawyers and the due diligence people are like swamp guides. If you don’t have a swamp guide you are not going into the swamp.” 

The authorities until now have been tight-lipped on the raids on foreign consultancies, sometimes brusquely acknowledging them but providing few details.

So the slickly produced CCTV special report on Monday evening showing police cars descending on a business park and teams of officers poring over Capvision’s offices and quizzing nervous employees seemed designed to send a strong message, analysts said.

With headquarters in Shanghai and New York, Capvision specialises in connecting international investors and management consultants, such as those from Bain and McKinsey, with its network of 450,000 subject specialists. More than 500 of the 700 employees of the company, which was founded in 2006, are based in the mainland, according to public records.

CCTV’s report homed in on two cases of Capvision-hired specialists allegedly sharing sensitive and secret information with foreign audiences. Neither appeared to be recent.

A man surnamed Han who worked at a state-owned enterprise was accused of sharing more than two dozen national and corporate secrets with Capvision’s foreign clients. A mugshot in the video appeared to show he was detained by China’s Ministry of State Security in 2020.

Another man surnamed Lei, who worked for a defence contractor, was similarly accused of divulging sensitive military information to a Capvision client in 2020.

“This is a normal law enforcement action,” China’s ministry of foreign affairs said on Tuesday. The aim was to promote the “sound development” of the sector and “safeguard China’s security and development interests”.

Capvision’s employees in its Beijing office on Tuesday would not comment on the matter, while the group earlier pledged to “resolutely implement the development of national security” on Chinese social media.

But Bob Guterma, a former Capvision executive, said the revelations were surprising given the group’s long experience of dealing with the laws and pitfalls associated with its business.

Guterma was hired as Capvision’s inaugural chief compliance officer in 2012 to set up a strict programme as it angled to woo more foreign clients. The primary focus was insider trading but the programme also accounted for risks more specific to China, such as handling state secrets.

Contact with police and regulatory agencies was frequent and cordial during his time at the group, which ended in 2015. “You, in a certain way, would almost welcome that,” Guterma said, adding that the communication with the authorities helped with navigating China’s murky legal environment.

“Capvision has been doing what they’re doing for a very long time and not secretly — they knew that their business model flies real close to the no-fly zones,” said Guterma, who now leads independent news outlet The China Project.

For this reason, he argued, the CCTV report was more about sending a warning to the public about providing information to foreigners. Normally, wrongdoing would be dealt with administratively by the authorities and not splashed over state television.

“With the CCTV special, that’s the full treatment . . . this is intended to send a big message.”

The clampdown on expert networks comes as China has cut off foreign access to data, ranging from shipping transponders that relay global supply chain information in real time, to public databases.

Last month, the country’s largest academic database CNKI, home to university theses, dissertations and other academic papers, began blocking foreign access. Private and government-run databases with Chinese corporate information, patent information, court records and procurement tenders have also snapped shut.

“They’re obviously trying to scare everyone and send a message,” said one former due diligence professional.

A US fund manager said his company was concentrating on consumer stocks, which seemed to have fewer national security complications, but even then, it still needed expert networks for non-public information, such as profit margins of specific business units or information on private competitors.

“I am concerned about my Chinese staff’s safety,” the fund manager said. “We don’t know where the bottom line is. What is a safe topic today can become sensitive tomorrow.”

The contradiction between China’s efforts to woo back foreign investors and Beijing’s clampdown on information might be due to overzealous implementation by lower authorities of instructions from China’s top leadership, which has said that “development and security have to go hand in hand”, said Li Mingjiang, a professor at Nanyang Technological University in Singapore.

“In the Chinese system it happens a lot, not just on this particular issue. Whenever the top leaders, the very top leader says something, the bureaucrats tend to overdo it.”

For now, however, the system seems oblivious to any over-reach. A state security official in a separate television special on the raids, his face blurred to conceal his identity, warned the crackdown would continue.

Security services will “intensify law enforcement against activities that endanger national security, such as consulting in violation of laws and regulations”, he said.

Additional reporting by Kaye Wiggins and Primrose Riordan in Hong Kong and Sun Yu and Nian Liu in Beijing