Capvision latest consultancy raided in China as crackdown escalates

08 May 2023 Consultancy.asia 3 min. read
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Consulting firm Capvision became the latest target of a police raid by Chinese authorities, a significant escalation in China's tightening grip on national security.

Chinese law enforcement officers have raided the China offices of global consulting company Capvision in Shanghai, Beijing, Suzhou, and Shenzhen on 8 May.

Capvision then announced on 10 May that the firm had put together a committee that would ensure the company was complying with Chinese regulations. Three board directors, including CEO Xu Rujie, are reportedly part of the new committee.

Capvision latest consultancy raided in China as crackdown escalates

This most recent crackdown was revealed in a report from China’s state broadcaster CCTV to be part of a national, multiagency police operation. The CCTV report, featuring clips of a brigade of police entering Capvision’s Shanghai office, alleged that the firm had provided foreign entities with sensitive information on the defense and advanced technology sectors, including what they called “state secrets and intelligence”.

The targeting of Capvision follows other recent raids. Police visited consulting firm Mintz Group in March, arresting five employees and closing the Beijing office. In April, Chinese officers visited the Shanghai office of US management consultants Bain & Company, where employees were questioned.

The raids on Capvision offices and other ongoing investigations into other consultancies are part of an intensifying crackdown by Chinese authorities on foreign – mainly US – consulting companies operating in the country. The specific details and motives behind these actions have not been fully disclosed, as Chinese authorities are known for being notoriously tight-lipped in regards ongoing criminal investigations.

The increasing hostility of Chinese authorities towards foreign businesses is part of a row over espionage and concerns over national security between China and the US. Chinese authorities allege US companies are engaged in espionage and data breaches as China recently beefed up its anti-espionage laws and appears to be continuing down a path of confrontation with the US.

Earlier this year, there was a call from China’s Ministry of Finance to Chinese state-owned enterprises to stop using the Big Four amid fears over cybersecurity and state secrets.

The art of due diligence
The raid again puts a spotlight on due diligence, a type of consulting that involves conducting thorough assessments and analysis to evaluate the financial, legal, and operational details of a business or individual, which aids decision-making in various transactions.

Business leaders see due diligence as routine and necessary, but the Chinese government has signaled that it views the practice as akin to spying because it involves compiling information about Chinese markets, companies, and policies for foreign clients that may be looking to acquire or invest in Chinese companies.

With many Chinese companies being state-owned and due diligence sometimes involving unsavory prying, the practice has been a magnet for controversy in the increasingly heated relations between Washington and Beijing.

Capvision is not a traditional consulting firm, but rather an ‘expert network’ that connects companies with experts that are able to help them. The company was founded in Shanghai in 2006 by former Bain & Company consultants together with Morgan Stanley investment bankers, though it is headquartered in New York.

Capvision did not responding to requests for comment from the New York Times and Reuters following news of the raid. Capvision did however release a statement on its WeChat account expressing its commitment to adhering to China’s national security regulations.

Trump administration’s so-called ‘trade war’ against China was the beginning of this most recent episode of tension between China and the US, countries that have been as odds for decades. It gradually worsened in the past several years until reaching a crescendo in February when US fighter jets shot down a Chinese spy balloon drifting over US territory.