China’s Raid on Capvision Sends a Strong Warning

Beijing’s recent raid on consultancy firm Capvision, showcased in a dramatic televised broadcast, serves as a clear message to foreign businesses and consultants: exercise caution when sharing information with foreigners.

The 15-minute state television report, part of a coordinated campaign to clean up the expert network industry in China, has sent a chilling signal to consultants and foreign businesses operating in the country. The raid on Capvision comes in addition to recent raids on US firm Bain & Company and due diligence group Mintz, which has made it increasingly challenging for foreign investors to access even basic information on potential acquisitions, Chinese partners, or suppliers.

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Despite efforts by China’s second-ranked leader, Li Qiang, to attract foreign and private investors back to the country after the economic downturn caused by the pandemic, the clampdown continues. The actions by Beijing are causing concern within the foreign business community, with experts and due diligence professionals highlighting the challenges faced in navigating the evolving landscape.

The authorities, who have been mostly tight-lipped about the raids on foreign consultancies, strategically designed the CCTV special report to send a strong message. The broadcast showcased police operations at Capvision’s offices, emphasizing the consequences of sharing sensitive information with foreign clients.

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Capvision, with headquarters in Shanghai and New York, is regarded as the largest expert network firm in China. They specialize in connecting international investors and management consultants with its extensive network of subject matter specialists comprising leaders in business and politics. The CCTV report focused on two cases involving Capvision-hired specialists accused of sharing sensitive and secret information with foreign audiences.

The clampdown on expert networks aligns with China’s broader restrictions on foreign access to data, including public databases and academic resources. This comprehensive approach aims to promote the sound development of the sector while safeguarding China’s security and development interests.

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While Capvision has set up a compliance committee to address data security issues and called the investigation a wake-up call for the industry, former executive Bob Guterma finds the revelations surprising given the company’s experience in navigating the legal complexities of its business.

Guterma suggests that the CCTV report primarily serves as a warning to the public about sharing information with foreigners, rather than solely targeting Capvision. This high-profile broadcast deviates from the usual administrative handling of wrongdoing and amplifies the message being sent.

The clampdown on expert networks accompanies China’s tightening control over foreign access to various data sources, ranging from shipping transponders to academic databases. The restrictions aim to instil a sense of caution among businesses and professionals who rely on non-public information.

However, these measures also create uncertainty, as what is considered safe today may become sensitive tomorrow. China’s top leadership emphasizes the intertwining of development and security, but there may be instances where lower authorities overzealously implement directives, leading to potential overreach.

The state security official, whose identity was concealed in a separate televised special, warned of continued crackdowns against activities that endanger national security, including consulting in violation of laws and regulations. Despite concerns about potential overreach, the system seems oblivious to these worries for now. The intensified law enforcement measures underscore the ongoing commitment to national security and signal that the clampdown will persist.

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