“We must better balance development and security,” Xi Jinping said at this year’s National People’s Congress, shortly after he was reappointed as China’s president. These words reflect that Xi prefers to put political and national security ahead of economic growthan approach that appears to be gaining momentum at the start of his third term in office.
Within weeks of Xi’s speech, Beijing launched a wide-ranging attack on alleged espionage activities. The targets included the executive of Japanese drugmaker Astellas, who was arrested in March on espionage charges, and seasoned columnist Dong Yuyou, who was charged with espionage in April. This month, US citizen and Hong Kong resident John Shing-Wang Leung was sentenced to life in prison for espionage.
Meanwhile, the Chinese offices of several US-headquartered consulting firms have been raided on national security grounds. They include due diligence firm Mintz Group, whose five employees were reportedly detained in March, and Capvision, a consulting firm whose employees are said to have contributed to the disclosure of state secrets.
Simultaneously with the repression, Beijing announced a review of its counterintelligence law. From July, China will ban “collaboration with spy organizations and their agents” and will seek to protect any information related to “national security and interests.”
In today’s tense geopolitical climate, it’s no surprise that China is rethinking its security and economic priorities, such as United States and other governments did. But China’s counterintelligence has begun just as the country is trying to revive its COVID-hit economy.
After becoming prime minister, Li Qiang sought to calm down world that China remains committed to opening up and creating a “first-class business environment.” Beijing also said it continues to support the development and growth of the consulting industry. But against the backdrop of raids and arrests, such statements proved futile, prompting some companies to exit the market.
What’s more, many of the allegations made against Capvision and others do not appear to be recent, but date back several years. So why did Beijing choose this particular moment to make its counterintelligence concerns public? And how does that fit in with efforts to build business confidence in China?
One thing to consider is that China recently completed a major government change. This is traditionally the best time for such crackdowns as a new leadership team seeks to chart the direction of policy for the next term. Beijing’s public criticism of Capvision serves as a warning not only to foreign consulting firms, but to their local partners.
Another reason why China is now making its counterintelligence activities public has to do with geopolitics. Over the past few months, Washington has announced spying allegations against numerous suspected Chinese agents, claimed that China runs secret police stations in other countries, accused Beijing of flying “spy ballover the United States, and interrogated Chinese TikTok about alleged eavesdropping on US citizens. This list of allegations of espionage clearly put Beijing in a position where it felt the need to reciprocate.
However, effectively accusing foreign firms of espionage is a significant escalation on Beijing’s part. Chris Miller, economic historian and author of The Chip War, described the allegations against the Astellas chief executive as “doubtful“. As someone who works in the consulting industry in China, I am also skeptical that foreign firms or their employees would actively engage in espionage, except perhaps in rare anomalies.
But Beijing’s definition of “espionage” appears to have expanded. IN report on Capvision, China’s state broadcaster suggested that sensitive areas now go beyond traditional taboos such as the military industry and cover sectors such as finance and healthcare. A Xinhua An editorial in April also urged: “The activities of foreign spy agencies and anti-Chinese forces are no longer limited to traditional security realms.”
The editorial cites the example of a Shenzhen-based consulting company that was penalized after auditing supply chains in Xinjiang for a foreign NGO. In accordance with Financial Times According to sources, the Mintz Group raid was linked to similar work in China’s sensitive northwest region. Recall that past repressions against foreign journalists in China also came after they reported Xinjiang and other areas of extreme sensitivity.
This pattern points to another important driver behind Beijing’s crackdown on counterintelligence: limiting the flow of malicious information from China. This may not be for national security per se, but to drive the global narrative about China, according to the Wall Street Journal. Lingling Wei reported. In addition to the raids, Wei cited recent restrictions on foreign users’ access to Chinese business information databases such as Wind and Qichacha.
Above all, China’s counterintelligence drive signals that the subjugation of economic growth to national and political security will only intensify in Xi’s third term, despite the implications for the economy. His team may have been reassured by the activity in the first quarter, which prompted IMF raise expectations for China’s GDP growth this year.
But China’s economic data for April looked less rosy, with manufacturing orders shrinking and export growth slowing. I also saw it last month stunning domestic consumption and investment in real estate, as well as record youth unemployment. Given that such economic headwinds persist, Xi’s balancing act between security and economics may be easier said than done.