The Mintz and Astellas cases have sparked an urgent review of employee safety and the immediate suspension of some travel plans to China, according to two people from foreign risk consultancy groups.
“This has been a wake-up call for the industry,” one of the people said. “It is hard for the due diligence players — the levels of paranoia in China are so high — but it also affects ‘blue-chip’ service firms and outfits like Bain, McKinsey and Boston Consulting Group.”
Experts said Japan was particularly vulnerable to Beijing’s hostage diplomacy because it lacks a sophisticated intelligence agency of its own and lacks tools to negotiate the return of its own citizens.
Since China passed a counter-espionage law in 2014, 17 Japanese nationals have been arrested. Five of them, including the Astellas employee, remain in detention, according to Japan’s foreign ministry.
In February, China imposed new sanctions on Lockheed and Raytheon, two of the biggest US defence companies. The move reflected Chinese opposition to weapons sales to Taiwan but had little commercial impact as the groups were not allowed to sell military equipment to China.
Beijing’s investigation into Micron, launched last month on national security grounds, is viewed as the clearest signal of Xi’s retaliation gathering momentum.
Dexter Roberts, a senior fellow at the Atlantic Council, a Washington think-tank, said he was surprised by Beijing’s restraint given the US-led campaign to cut off China from core chipmaking technologies had “struck right at the heart of China’s global advanced technological ambitions”.
Despite Beijing’s anger, Xi’s economic planners are wary of undermining efforts to use foreign investors to help restart the Chinese economy after the pandemic. This means Beijing is expected to refrain from acting against companies and industries seen as critical to economic recovery.
“It all goes back to the fact that China is facing a lot of challenges this year, particularly on the economic side,” Roberts said. “The last thing they need to do is be distracted by an even more hostile relationship with the US.”
Following the finance ministry’s record $31mn fine on Deloitte over audit deficiencies, experts said they expected pressure to increase on the Big Four accounting firms.
Cheng Lin, an accounting professor at China Europe International Business School in Shanghai, said while audit quality had long been problematic at foreign and local firms, the “main drivers” were Beijing’s worries about data and national security.
The carmaking sector is also braced for the outcome of a 2022 commerce ministry review of technology export restrictions, including possible controls on some rare earth materials and lidar technology used in mapping for driverless cars.
