At the end of March 2023, Hiroshi Nishiyama, a 50-year-old executive working for Astellas
Pharma, one of Japan's biggest pharmaceutical companies, disappeared, vanished into thin
air.
He did so on his last day in China, just before returning to Japan after 20 years working
in the Asian nation.
Soon after, of course, it became clear why he had disappeared: Mr. Nishiyama had been
arrested by the Chinese police, who accused him of nothing less than being a spy.
Or at least of being involved in espionage activities.
The problem, VisualPolitik community, is not the charges, as dubious or otherwise we may
find them, the problem is that he is the eighteenth Japanese national to be arrested and charged
with the same thing since 2015.
In fact, suspicions and espionage accusations have become all the rage in this country.
(15 May 2023: China Sentences American Citizen to Life in Prison for Espionage – WSJ)
And take note, because the espionage trend does not only affect isolated cases.
The State media have targeted consulting and auditing firms, many of which are reportedly
being investigated by national security agencies.
For example this has meant that, in the Political Risk Survey conducted by Oxford Analytica
among several multinationals, China has already become the country second on the list for
having the highest political risk in the world, behind only Russia.
This also helps to explain what we have already told you many times, that although China is
still a very important destination, more and more companies are studying how to diversify
their production activity in this country.
It may not be having a great impact in the media, but the truth is that the latest decisions
of the Chinese government are setting off alarm bells in many multinationals.
We are even talking about a change in the counterespionage law that could put a lot
of companies and professionals in the path of the hurricane.
The question is: What on earth is going on in China?
Why are so many red alerts going off?
Is Xi Jinping's government using espionage legislation to pressure, punish or cut ties
with some foreign companies?
What might all this mean for the economic future of the People's Republic of China?
Well...
Pay close attention, because in this video we are going to answer all these questions.
And first of all, we need to understand where it all started.
(THE CLOSING)
It all started in 2014, barely a year after Xi Jinping became the all-powerful President
of China, with headlines like this one:
(China Legislature Adopts Counterespionage Law
New Law Defines Espionage, Grants National Security Agencies Authority to Seize Property
– WSJ)
This new law replaced the National Security Act of 1993 and granted national security
agencies the ability to detain and prosecute activities that in their judgment were deemed
detrimental to...
National Security.
It also allowed for the seizure of assets and property and the right to confiscate any
device, money or other item that was related to espionage.
Xi Jinping likes to have his ducks in a row.
So not surprisingly, after this law was passed,... the arrests began.
For example, on 15 July 2016, when he was about to take a plane back to Japan, researcher
Hideji Suzuki was detained.
He did not know the reason.
He was accused of being a spy.
At the trial he learned that one of the reasons was that he had asked a colleague who was
a Chinese official if he knew anything about Kim Jong-un's alleged execution of his uncle.
In the end there was not much of a story, but he was sentenced to six years in prison.
The conditions?
I’ll let him tell the story himself.
("The hardest part was during the first seven months of my detention.
The curtains were closed in that room.
I could only see the sun for 15 minutes with special permission.
I cried when I saw it."
– Hideji Suzuki)
In 2017, four employees of NC Geophysical Survey and two employees of another local
company were also arrested.
In 2018, Chinese authorities reacted to Canada's arrest of Huawei CFO, Meng Wanzhou, by detaining
two Canadians on espionage charges, although no evidence was presented.
These are just three examples of many more cases.
Of course, that was only the beginning.
Particularly in recent years, the Chinese government has stepped up its efforts to increase
its control over almost everything.
In 2021, the Cyberspace Administration of China introduced many new data export restrictions...
Restrictions that came into effect on 1 September 2022 and are already making life very difficult
for a lot of companies and professionals of all kinds.
For example, these rules are restricting the access of companies, investors and professionals
to accounting information of Chinese companies, patent information, academic journals and
statistical series of all kinds.
This is, for instance, the case of the most important database in the whole country, the
one managed by the Shanghai-based Wind Information, a huge source of economic and financial data
that until now was widely used by foreign analysts and investors.
However, that is becoming increasingly complicated.
In the same vein, in 2019, another researcher from Hokkaido University was also detained.
Today, five Japanese are being held in China on very similar charges of espionage.
Not long ago employees of the US consulting firm Bain & Co in Shanghai were interrogated.
At fellow US consulting firm Mintz Group, five workers were detained and in March 2023
Beijing announced a cybersecurity review against the US semiconductor company Micron Technology.
In the same way, the police also paid a surprise visit to the office of the North American
networking and consulting company, Capvision.
VisualPolitik viewers, the Chinese government has become obsessed with data.
And that is exactly what explains news like this:
(China Locks Information on the Country Inside a Black Box – WSJ )
However, possibly the most important measure, with potentially far more serious repercussions,
came with the beginning of the second quarter of 2023.
Check it out.
(China approves wide-ranging expansion of counter-espionage law – Reuters)
On 26 April, the main legislative body, the so-called National People's Congress, approved
a very significant reform of the 2014 counterespionage law.
A reform that has set off alarm bells for companies, investors and governments around
the world.
The question is, why?
Well, we are going to take a look at that next.
Pay close attention because the repercussions of this change may be much more serious than
you think.
[By the way, a note.
Taking a look at the statistics we have seen that still more than 50% of the people who
watch VisualPolitik are not subscribed to the channel.
The question is, what are you waiting for?
We are working hard on very top videos.
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VisualPolitik community, the latest reform of China's counter-espionage law has set off
all the alarm bells.
The question is, why?
Well, basically because this reform incorporates five major changes:
Firstly, the scope of the law is extended to all documents, data, materials and items
that in the government's judgment may be related to national security and interests.
Regardless of whether they are public or private.
Because in fact the law does not even define what it consists of or what areas fall under
the concept of national security.
So what does this mean?
Well, we’ll see in a moment, but basically it means that everything is at the discretion
of the government.
Secondly, the reform also strengthens control over cyberspace.
Thirdly, law enforcement is given more power to inspect and seize the luggage and electronic
devices of anyone who may be suspected of dealing with sensitive data.
Fourth, all Chinese citizens and organizations will have to report any "suspicion" of espionage
at the risk of being considered complicit if they fail to do so.
And you know what that could mean...
Basically, that any behavior could be considered suspicious.
We'll look at some examples later.
("Foreign academics like me will now avoid going to China if we can, because things like
comments on social media could be seen as evidence of having committed espionage in
the eyes of the Chinese government."
– Tomoko Ako, academic at the University of Tokyo)
And fifthly, any person will be banned from leaving the country, whether a national or
even, if necessary, a foreigner, who is under investigation – even if he or she has not
been prosecuted – or whose departure is considered to pose a risk to national security.
To give you an idea, according to Reuters data, between 2016 and 2022 the number of
exit bans multiplied by eight, so imagine what this reform could mean from now on.
But, wait a minute, why has this law set off so many alarm bells?
Well, mainly because it intrudes fully into the operation of private companies.
The law not only talks about State secrets, but also about any kind of information and
data.
So naturally, the problem is that any company, in order to function more or less correctly,
needs its executives to have information:
They need to know industry trends, consumer preferences, their savings levels, patents
being published, industrial designs generated by the company itself, data from its rivals,
and so on and so forth.
However, now just being in possession of that kind of information could be a huge problem.
And the same happens with the associated companies: auditors, consultants or lawyers.
Now if they are foreigners they have to work with a type of information that could land
them in jail...
After a trial that, in the case of espionage accusations, is done in secret.
Without lights or stenographers.
In other words, anyone who has handled sensitive project or company information in China could
now be charged with nothing less than counterespionage under the Counterespionage Act.
They are not even required to be credited with working for a foreign power.
And this is a major problem, because virtually anyone can get arrested and charged with espionage.
Which, logically, is one of the worst things that can happen to you in most countries in
the world, and especially in autocracies such as China.
("It has become even more unclear to foresee the situation, and companies are forced to
be more cautious in many ways" – Kengo Sakurada, head of the Japanese Association of Corporate
Executives)
("The CCP's updated counter-espionage law sends a loud, clear signal to the world: there
is no such thing as a private company in China.
The State reserves the right to arbitrarily seize any property, steal any IP, harvest
any data."
– Rep. Mike Gallagher (R-WI), Chairman of the Select Committee on the Chinese Communist
Party)
And not only that, the public broadcaster CCTV has even charged consulting firms for
allegedly causing damage to national security.
So now, for example, to avoid being accused of espionage at any time, companies, executives
and investors will have to work with the official data that the government decides to publish,
without being able to try to obtain and collect information on their own...
Unless they want to risk ending up in the slammer.
And this is just one of many possible consequences.
In addition, now any "accusation" for whatever reason may end up with national security agencies
searching the electronic devices and offices of foreign companies, which could expose trade
secrets and intellectual property.
And what can I say, given China's track record in this field... you need to take care.
And in the United States this is an issue that is generating more and more concern.
("Our business leaders need to take off their golden blindfolds and recognize that the recent
police raids of American companies Bain and Mintz are not one-offs, but part of a long,
proud tradition of exploitation – Mike Gallagher (R-WI))
("Congress should pass legislation empowering the Securities and Exchange Commission to
limit the flow of funds to China.
The effort should enjoy bipartisan support."
– George Soros)
Of course, having said that, the question I'm sure many of you are asking is...
Why?
What does the Chinese government have to gain by targeting private information and data?
Well... probably nothing.
But Beijing is fundamentally obsessed with three things:
First, as Teng Biao, an activist, legal expert and professor at the China University of Political
Science and Law in Beijing, argues, with all this control the government wants to prevent
foreign powers from instigating a color revolution in China.
And okay, you may not think that sounds like the most likely thing in the world.
But whatever the case, in Beijing, they seem obsessed with being in control and preventing
anything that could affect the current regime.
If all companies are on a short leash, so much the better.
Second, the government wants to control the narrative about the real state of the Chinese
economy.
The Chinese economy is not at its best: youth unemployment is breaking records, only public
investment is growing and the foreign sector is slowing down.
Does this mean that the Chinese miracle is coming to an end?
Just in case, in Beijing it is clear that the less that is known the better.
And third, the government also wants to prevent at all costs China's corporate, industry and
technology data from leaving the country to be used by rivals in the rest of the world.
Now, the question that I am sure many of you are wondering is...
And how could all this affect the Chinese economy?
Is it that Beijing wants to get foreign companies to leave the country?
Nothing could be further from the truth.
Stay tuned.
(OPEN ARMS?)
So you see.
This is the latest major headache that the Chinese Communist Party regime is causing
to foreign companies in the country, and also to local companies themselves.
Of course, this isn't the first setback.
In recent years, we have seen, for example, the war that Xi Jinping's government unleashed
against the big Chinese tech companies.
It began in late 2020 when Beijing halted the IPO of Alibaba's financial arm following
critical statements by Jack Ma that were something like the final straw for Beijing's top brass.
From that moment on, a campaign of new rules, fines, limits, boycott of corporate operations
and much more control of all these companies was launched by the Communist Party.
Their objective?
To limit the growing power that these groups were monopolizing in the country.
[Daring to criticize Xi Jinping, where have we seen that before?]
And not only that.
Shortly thereafter, on 17 August 2021, the well-known Plan for Common Prosperity was
promoted to limit the excessive profits that, according to the government, many companies
were making.
In other words, for the first time in many years, the Chinese government once again targeted
corporate profits.
But... let’s keep going.
At the same time, the Chinese government also began to strengthen its presence in the capital
and especially in the management of large companies.
To give you an idea, now both state-owned and private companies have at the highest
level – even above the CEO of the company itself – a representative of the party to
supervise and participate in decision-making.
These are just three examples to which are added tons of new regulations and now, also,
the counterintelligence law reform we have seen.
And of course, with all this in mind...
The question, the big question that seems to be on the table is: Does the Chinese government
want to scare away private companies?
The most surprising thing of all is that apparently not.
All these plans clash head-on with the government's other two main priorities: to turn China into
the world's great economic benchmark and, above all, in the short term, to encourage
new foreign investment to boost its economy and overcome all the potholes in which it
is mired.
("Everyone wants us to invest more.
It appears a bit like the left hand doesn't know what the right hand is doing".
– Jörg Wuttke, president of the European Union Chamber of Commerce in China)
In fact, China's Prime Minister is in the midst of a campaign to try to improve the
country's image and never tires of repeating, again and again and again, that "China is
open for business".
("The Chinese government has continuously said it welcomes foreign investment.
However, a flurry of recent actions taken against US enterprises in China has sent the
opposite message” – Michael Hart, president of the American Chamber of Commerce in China)
This is the great contradiction of the Chinese government.
A contradiction that is causing, for instance, that for the first time in the last 25 years,
in the American Chamber of Commerce's business sentiment survey in China, the majority of
companies have responded that they no longer see China as one of the top three priority
investment destinations.
Yes, this country will continue to be crucial because of its huge market and international
companies will continue to invest a lot of money in it, but it seems increasingly clear
that this bet is losing strength.
If previously the idea was to invest in China to serve the entire global market from there,
now the idea is that investments in China should essentially serve the local market.
That seems to be the direction in which they are heading.
And do you know what?
This is not good for China.
[Which is, on the other hand, what explains the Prime Minister's campaign].
But if you like, let's take a look at some data:
As you can see, youth unemployment is breaking records.
Among those unemployed are almost 12 million university graduates...
And this despite the fact that aging has caused the country's active population to fall by
more than 40 million people in the last three years.
Things are getting so dire that visits to the temples have multiplied by four.
Half of the visitors are young people born after 1990 who go there to pray for a job.
No kidding.
For their part, the State media have launched a campaign to reprimand university graduates
for not taking jobs in activities such as construction, agriculture or the hotel and
catering industry.
And this is not an isolated problem.
("The world's second-largest economy is not soaring across the board.
Consumer spending is recovering, but manufacturing is retreating and industrial profits are falling.
Household income growth is weak and youth unemployment is near a record high."
– Bloomberg)
So you see.
Now the counterintelligence law reform promises to add fuel to the fire.
China's reforms are starting to make life very difficult for companies just at the time
when they need companies and corporate investment the most.
Crazy.
We will be giving you many more updates about the status of China in our bulletin for patrons.
I’ll leave the link in the description.
The question is: Is it worthwhile for Western companies to continue investing in China?
Will they maintain their investments or reduce their commitment to the Asian giant?
How might this affect China?
What would you do?
Leave us your impressions in the comments and let's start a debate.
And now, if you found this video interesting, don't forget to like it and subscribe to VisualPolitik
if you haven't already done so.
All the best and see you next time.