China fines US company Mintz for illegal activities, prompting investor concerns

As China attempts to revive its economy, a raft of measures including tighter counter-espionage laws, raiding the offices of US advisory firms, changes to cybersecurity rules, and blocking the export of Chinese data, is damaging investor confidence in the world’s second-largest economy.

China’s clampdown on US consultancy and advisory firms continued last month, when Beijing’s Bureau of Statistics (BBS) fined the US due diligence firm Mintz Group approximately 10.7 million yuan ($1.5 million) for conducting “foreign-related statistical investigations” without a proper license. Mintz performs background checks on employees and business partners, and gathers strategic business information for corporate clients.

On 5 July, the BBS posted on its website that Mintz had conducted 37 unauthorized investigations between March 2019 and July 2022, confiscated 5.34 million yuan of the firms “illegal proceeds”, and imposed a fine, bringing the total to around $1.5 million.

The day before the announcement, on 21 August, the US Department of Commerce removed 27 Chinese entities from the US “unverified” list that flags end-users of concern for various reasons.

Spooking foreign investors

China’s clampdown is having a knock-on effect on foreign investors, who are increasingly concerned about doing business in China against a background of recent raids on US and other foreign companies. In April, five employees of Mintz Group were detained following a raid by Chinese police, while offices of Capvision were raided by foreign intelligence agencies in Beijing, Shanghai and at least two other cities (see blog ‘China targets US companies’).

At the same time, China has introduced a host of ‘anti-espionage’ measures on foreign businesses, leading to investors calling for greater clarity, in the eyes of Beijing, about what constitutes spying. Further, Beijing has tightened controls over the ‘export’ of Chinese data abroad, including a ban on access to research that was implemented on 1 April 2023 and the WIND financial database.

Given that Xi’s government is looking to boost foreign investment to rebuild its post-Covid economy, such raids and stricter counter-espionage rules are spooking US companies and investors. For example, on 10 August the world’s largest law firm Dentons (which operates from London and Washington) said that it would be separating from its Chinese partner Beijing Dacheng Law Offices as a result of changes to data privacy, cyber security, and governance rules. A month before the announcement, Dentons had advised employees against travelling to China.

Chinese concerns over leaked data

China cites national security concerns as the reason for this environment, and – as is the case with Capvision – has accused some US firms of leaking sensitive military information. All of this comes against a backdrop of increased US-China tensions – for example, the US, Japan, and Netherlands have introduced tight export controls on equipment used for making advanced semiconductors.

Pamir considers that these crackdowns are damaging investor confidence in one of the world’s largest economies. Further, fining “unlicensed investigations” signals government fear that looking into the financial underpinnings of Chinese firms could expose systemic problems and potentially destabilize China’s financial industry.

As the economy struggles to recover, the central government aims to restrict public knowledge of bad investments, loans, and financial positions that undoubtedly could resemble China’s ongoing property development crisis. Beijing’s recent action is a clear warning that similar efforts should stand down. Pamir also recommends that US employees avoid one-to-one meetings with local Chinese staff that might be perceived as suspicious or as espionage-related activities.