The firm, which is headquartered in New York and Shanghai, conducts market intelligence research and connects clients to experts.
The first government confirmation of a national-security-linked probe comes after a string of law enforcement investigations targeting foreign consultancies and research firms that have spooked China’s international business community.
Police went to the Beijing offices of the Mintz Group, an American firm that conducts corporate due diligence, in March, arresting five employees. Last month, Bain & Company said Chinese authorities had come to its Shanghai offices.
Until now, Chinese officials have uttered only vague and brief statements about the need for foreign businesses to “act in accordance with Chinese law.”
But the announcement late Monday about Capvision directly tied the probe to counterespionage and national security campaigns that have intensified and expanded under Xi Jinping, China’s powerful leader.
In a 15-minute feature on the Capvision investigation, state broadcaster China Central Television accused the firm of offering kickbacks for providing classified information and failing to go through necessary compliance processes before sharing sensitive information to international clients.
The announcement came the same day that Qin Gang, China’s foreign minister, told the U.S. ambassador to Beijing, Nicholas Burns, that the two sides should stabilize relations to avoid a “downward spiral.”
CCTV accused “some consultancies and investigation firms” of “ignoring possible national security risks and not earnestly fulfilling their responsibilities and obligations to carry out anti-espionage security prevention.”
In language that will further unnerve foreign businesses, the program called out Capvision’s practice of connecting its clients to “consulting experts” inside Chinese Communist Party agencies and “work units that touch on state secrets” to obtain sensitive information.
The firm “has no relevant management requirements and compliance audits for maintaining national security responsibilities and preventing security risks,” an unnamed Shanghai state security officer told the program. “In fact, no one [at Capvision] cares; they only pursue economic interests.”
Capvision, which was founded in 2006 by former Bain and Morgan Stanley employees, did not immediately respond to a request for comment on the investigation.
However, shortly after Chinese state media reported on the raids, Capvision’s account on WeChat, China’s dominant social media platform, reposted an advertisement for China’s official state security education day on April 15, in an apparent attempt at damage control. The ad said that “the national interest comes above all else.”
In reposting the ad, Capvision did not directly comment on the probe but said the company would “resolutely and thoroughly implement the national security and development outlook,” a reference to Xi’s philosophy on the need to build “holistic” defenses against threats to China’s “rejuvenation.”
The need to comply with state-secret-related rules is not new for foreign businesses, said James Zimmerman, a partner in the Beijing office of Perkins Coie LLP and former chairman of the American Chamber of Commerce in China.
But because China-U.S. relations have “pretty much bottomed out,” the American business community is “bound to see an uptick in highly politicized enforcement activities,” he said.
“Given the fact that there is no effective judicial oversight or remedies, we can also anticipate much overreaching by the police and state security authorities,” Zimmerman said. “A troubling trend indeed.”
Even before recent raids, wave after wave of crackdowns on an array of sectors including online education and ride-hailing — as well as sporadic “zero covid” lockdowns and a bitter trade dispute with the United States — had undermined international investor confidence in being able to navigate the fast-changing political landscape of Xi’s China.
A drumbeat of ominous reminders of the political risks of operating in China has worsened those fears in recent months, even as Beijing has repeatedly promised that the country is open for business.
A report by a rights group published last week detailed how Chinese authorities have expanded the use of exit bans targeting human rights activists and foreign business people alike, increasingly deploying them in politically charged cases as well as purely commercial legal disputes.
That same week, Chinese lawmakers revised an anti-espionage law to insert vague language warning that attempts to acquire “documents, data, materials or items related to national security and interests” could be defined as spying.
The legislation also highlighted attempts to “incite, entice, coerce or buy over” state employees as potential acts of espionage.
Vic Chiang and Pei-Lin Wu contributed to this report.
