Explained | China’s ‘developmental’ security approach

Understanding the domestic factor to China’s aggressuve behaviour against foreign companies. It is not just revenge against the U.S. moves to halt China’s tech progress.

The story so far: Late in May this year, the Cyberspace Administration of China announced that the U.S. chip giant Micron, which had been under investigation by the Cybersecurity Review Office, failed to obtain a security clearance, and that its products posed a threat to national security. Consequently, business operators tied to critical information infrastructure were advised not to procure Micron products. This is the latest incident in a series of crackdowns by the Chinese government against American consultancies and domestic firms dealing with overseas clients. 

Two weeks before the Micron announcement, the Chinese authorities had raided the offices of Capvision, a Shanghai-based consultancy firm that connects lakhs of China-based experts with backgrounds in defence, military, finance, high tech, trade, energy, and medicine among others, to mostly overseas clients. Capvision was charged by Chinese security authorities with using economic inducements to steal state secrets and facilitating the transfer of sensitive information sourced from its experts, to its foreign clients. In the process, the company was found guilty of violating several laws relating to national security.

Before that, in April this year, the offices of American consultancy firm Bain and Co. were raided and its employees in China questioned. While no employee was detained, the authorities seized computers and phones from its offices. In March too, Chinese authorities raided another American firm called Mintz, and detained some of its employees, forcing the firm to shut its two offices in Beijing. Meanwhile, the Chinese government has been stalling several mergers and acquisition applications involving foreign entities, which has, in turn, led to mounting operational costs for foreign businesses.

In October 2022, the U.S. tightened export controls which would make it harder for China to obtain and manufacture advanced computing chips and supercomputers. Therefore, at the outset, the actions by Chinese authorities appear motivated by vengeance against the U.S.-led efforts to constrain China’s tech advancement, as has been widely reported in the Western media. By heckling American firms and restricting their access to the vast Chinese market, Beijing seeks to capitalise on the divergence that exists between the U.S. administration and the American business community over the former’s China policy. Observers felt vindicated when Nvidia’s founder and CEO, Jensen Huang, expressed his reservations over U.S.’s export control measures against China. He feared a fallout on Nvidia’s revenues as China contributes to around 11% of its global earnings. In his statement to the Financial Times, Jensen even called China more valuable than Taiwan, owing to its irreplaceability as a large market.

The crackdown on consultancy and due diligence firms is likely to have ripple effects across all overseas businesses operating in China. Businesses rely on consultancy firms to navigate the regulatory environment which may prove to be challenging, especially in a country like China where regulatory unpredictability and uncertainty have been a norm in the last few years.

However, the above perspective amounts to a limited understanding of the motives of the Chinese authorities. There is a domestic component to these decisions that is different from the one that has largely been featured by mainstream media.

Beijing has justified each of the above-discussed actions using national security concerns. However rhetorical as it may sound, the reality is that threat to security has become a ubiquitous concern in all aspects of governance in China.