Work dries up for US consultancies in China after national security raids

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Top US consultancies are struggling to attract business in China as Beijing’s national security raids scare away local clients and global investors pull back from dealmaking in the country.

Management consultancy Bain is telling new China hires to wait until as late as 2025 to start their jobs, while roughly half of McKinsey staff do not have paid client projects to work on. Boston Consulting Group’s China team has been holding strategy sessions on how to revive its flagging business, according to half a dozen people close to the firms.

In May, China’s state security services said they were investigating the industry for jeopardising national security after they carried out raids on Bain’s Shanghai office and Capvision, which specialises in connecting management consultants and investors with a network of 450,000 experts.

Without sufficient work for their existing teams, all three top-tier US management consulting firms are delaying start dates for new recruits, leaving the incoming consultants instead to sharpen their skills, gain an extra degree or travel while they wait, the people said.

When BCG China failed to meet internal revenue projections in the first half of the year, executives began strategising on how to turn around their own business in the second half, according to people at the group.

McKinsey is also struggling to land new projects, with many staff working on proposals or other work that cannot be billed to clients, three people close to the firm said. “Being at McKinsey China feels like being on a sinking ship,” said one junior consultant.

McKinsey told the Financial Times it had a “solid client and recruiting pipeline” in China. BCG did not respond to requests for comment.

Three senior consultants at US firms said cross-border activity had previously been a big driver of demand, so declining foreign interest in China alongside the country’s own inward turn had resulted in less business.

Consultants said the decline was most stark at Bain, which recently pushed back the start dates for new hires to 2025. Earlier this year, the group offered voluntary six-month leave to China staff, who would still earn a portion of their salary for going on holiday, according to two people close to the company.

The consultancies’ struggles come against a backdrop of increasing geopolitical tensions between the US and China, as well as Beijing’s heightened vigilance over possible spying. Its anti-espionage laws were broadened in April from covering state secrets and intelligence to any “documents, data, materials or items related to national security and interests”.

Chinese state security visited Bain’s China headquarters in April, confiscating devices and interrogating staff about a previous consulting project. Four people briefed on the investigation said Chinese police were probing sensitive information passed to Bain from an outside expert hired through Capvision.

Bain’s China team had hired the expert, who worked at a state-owned enterprise, for a project assessing the potential size of a market. Three people said it was a semiconductor-related project for a South Korean company.

Some Chinese clients are now reluctant to use Bain. State-backed dairy Mengniu hired the consulting group in May to survey global competitors and create a plan for milk branding, according to tender details. But a Mengniu employee surnamed Meng who was handling the contract said the project had recently been called off.

Bain told the FT it did not comment on client work, and Mengniu did not respond to requests for comment.

Private equity groups, which often tap the group’s consultants to do due diligence on acquisition targets, are also pulling back from investing in China.

“Clients are saying we can no longer work with American consulting firms,” said one executive at a US consultancy. The executive said some state-owned groups had begun asking about hiring their firm through a third party, while others questioned them about where their data was stored.

Commenting on rumours that Bain and McKinsey were considering pulling out of China entirely, Bain said the firm had no plans to exit. McKinsey said it was committed to China.

On July 5, Yu Yong, the party secretary of the Shanghai district where Bain’s office is situated, visited the company to express support. “Jing’an District puts companies first and as always will do a good job in providing services and work to create a first-class business environment fostering their development,” Yu said, according to a Bain social media post.