The new China espionage rule is another in a long list of threats to Western SME investment
The new China espionage rule has sparked concerns and anxieties among people. Some view it as a draconian and arbitrary measure that grants unchecked power to obscure elements within the CCP and the Chinese government. This rule adds to a long list of similar measures. If you’re engaged in China trade, you might have encountered individuals sharing stories of unchecked power, hidden influences, and risks to international investors. However, let’s simplify things.
What worked before Covid is now a problem
Likely, your once-thriving China operation is no longer sustainable. Even before the impact of Covid, the dynamics of manufacturing in China were changing in ways that some foreign-invested firms found manageable while others did not. The current state of trade relations between the US and China in July 2023 introduces additional compliance costs, transactional risks, and potential harm to your brand.
In other words, the China business model that was effective from 2006 to 2018 may no longer be viable.
You are not useful to China anymore
You might feel unwelcome and unnecessary now. The administration in power emphasizes its princeling status, which means you won’t receive assurances on par with those given to figures like Musk. You become collateral damage, and once you start compromising, it’s difficult to stop. The CCP seems to favor media coverage in the US, just as the Russians have Tucker Carlson while the CCP has Reuters and NPR, among others.
Your Chinese partners, suppliers, and regulators may be more familiar with your business than you realize. They have insights into your operations and possess information that could potentially harm your interests. Beijing operates in a Princeling world, with Xi Jinping, a princeling himself, surrounded by others in this reconstituted Imperial China. While he engages with prominent leaders and strikes deals with individuals like Musk and Gates, not all enterprises within the CCP are treated equally. Assurances provided to Fortune 100 companies hold little weight for front-line entrepreneurs.
The new espionage rule continues intimidation tactics
The Chinese approach does not involve sweeping through business centers to harass foreign investors. Instead, they prefer making examples of a few while intimidating others with “invitations to tea.” This strategy allows the market to suppress itself. Consequently, your local managers may hesitate to deviate from prescribed boundaries, fearing they may become examples themselves. There’s an expression for this tactic: “kill a chicken to scare the monkeys.”
Compliance is an ongoing journey. Once you concede to minor demands, you implicitly agree to comply indefinitely. That’s why this new regulation resembles a repackaging of past rules. The control of enterprises by the Party has never been a subject of debate in China, and this new rule doesn’t alter that reality. Foreign operations in China have already agreed, in one form or another, to these conditions.
The CCP excels in propaganda and media manipulation, and this situation serves as a bonus for them. While the Chinese struggle with projecting positive soft power, they excel in intimidation. Beijing delivers contradictory messages: a conciliatory and inclusive one for those it deems useful, alongside harsher warnings for those already within its grasp.
Should you worry about the new China espionage law?
Should you be worried? Yes. Have you should have been concerned for the past 20 years, since this all began? Certainly. However, the key point is that nothing has changed.
In risk analysis, when confronted with conflicting trends or data sets, it is advisable to consider the less favorable option. The CCP’s “love language” or genuine communication style involves repackaged warnings about the Party’s dominance and the need for compliance. They appear nervous, and this could be seen as groundwork for forthcoming state actions.
Consider yourself warned.
