After the end of zero-COVID measures, China announced it was open for business and wanted to encourage the return of foreign investment. But something new seems to be happening that runs contrary to those claims. This week, China’s legislature expanded an already-broad counter-espionage law in ways that could potentially make almost anyone a suspect.

The original version of the law, passed in 2014, was already “very ambiguous and very powerful,” said Yasuhiro Matsuda, an international relations professor at the University of Tokyo. “But China thinks it’s not enough,” he said…

The new language in the amendment suggests “any organization and anyone can be suspect … and anything can be counted as a threat to national security” in the arbitrary application of the law, Matsuda said. “This will definitely cause a chilling effect,” he said…
According to analysts, topics such as the origin of Covid, China’s real pandemic death toll, and authentic data on the Chinese economy could all fall within the crosshairs of the law.

“Before (some activities) used to be normal engagement, but now they could be espionage,” said Alfred Wu, an associate professor in Lee Kuan Yew School of Public Policy at National University of Singapore.

“Something like a local government budget you could broadly define as relating to national security, or even food security,” he said. “Researchers definitely need to be careful.”

If there’s one thing we learned from China’s slow-motion crackdown on Hong Kong, it’s that changes in the law are usually made strategically with an eye on some specific goal. In Hong Kong, protests were made illegal, free speech was curtailed and elected officials were legally required to be patriotic (meaning compliant with mainland China). Over a matter of months, anyone who opposed central control was imprisoned. So the change to the espionage law makes you wonder what China has planned next.

But we don’t have to wait to find out. It appears China has already started a kind of crackdown aimed at US businesses operating in China.

Last month, U.S. due diligence firm Mintz Group said Chinese police had arrested five of its local employees and shut down its Beijing office. Chinese authorities later said the company was being investigated for “illegal” activities. A few days later, China’s top cybersecurity regulator said it was investigating leading U.S. computer chip maker Micron Technology and would review its products over “national security concerns.”

The focus on Micron Technology in particular isn’t hard to understand. This is retaliation for US efforts to block Chinese access to high-end chip-making equipment.

Based in Boise, Idaho, Micron Technology makes memory chips used in phones, computers, data centers, cars and other electronics. It has longstanding ties in China and is an emblem of America’s leading position in the global semiconductor industry. But now Micron has gotten ensnared in China’s drive to become self-sufficient in advanced technology…

China’s decision to put Micron under review followed sweeping restrictions placed by the United States on China’s semiconductor industry. Those measures, unveiled in October, targeted some of Micron’s Chinese competitors…

In 2018, the U.S. Justice Department began investigating chip makers from China and Taiwan for allegedly stealing trade secrets from Micron. One of the companies has pleaded guilty, and the case of the other is continuing…

Micron began reducing the number of Chinese staff and shuttering operations at its Shanghai chip design center in January 2022. Like many Western chip makers, Micron has a strong manufacturing presence in Asia, including in Singapore and Taiwan, but it recently announced plans for a $100 billion chip plant in New York.

So the big picture here is China was stealing technology from US companies (as it always does) and the US has finally put its foot down and said enough. Now Micron is pulling back and taking its advanced tech with it while China is left unable to compete and unable to even buy the newest high tech EUV lithography machines which are the culmination of a massive international effort in research and design, one which does not include China.

But China won’t stop with Micron. In the past two weeks it has also targeted Bain & Company’s Shanghai offices. Bain is a US consulting firm that provides research and advice to corporations.

In a written statement, Bain said it is “cooperating as appropriate with the Chinese authorities,” but declined to comment on the nature of the investigation and whether its employees’ phones and computers had been seized during the visit…

It is a common business practice for companies to investigate local markets and do background research on potential partners or competitors before investing money. They often rely on advisory firms like Mintz and Bain to help with that work…

Multinationals typically share sensitive information with advisory firms under confidentiality agreements that require the clients to be notified if any of their data is compromised. So firms that are raided face conflicting legal obligations to the Chinese government and to their clients.

Many global companies operating in China are trying to wall off their computer systems outside of China to limit potential losses of trade secrets and other valuable data.

Other reports say that phones and computers were seized during the Bain raid. You can probably see how that new counter-espionage law creates a big problem for companies like Bain and Mintz. They need to gather data on Chinese companies and the general economic climate in order to advise their clients but suddenly gathering all of that information leaves them open to charges of espionage. Plus, at any time the Chinese police can come in and demand all of that information, potentially compromising their clients’ plans.

Michael Hart, president of American Chamber of Commerce in China, told the BBC “Our business community is spooked, and our members are asking, ‘Who’s next?’ Irrespective of the government’s intention, that’s the message being received.”

All of this reminds me of what happened when Canada arrested Huawei CFO Meng Wanzhou in 2018. Meng’s case was moving toward extradition to the US where she would face charges. China came up with a simple solution to this problem: It kidnapped two Canadian citizens and charged them with the identical charges that Meng was facing. There was nothing subtle about the message. If you try to hold one of our people accountable, we’ll send a few of your people to prison on trumped up charges.

I think the current situation isn’t all that different. China isn’t getting its way on microchips, it’s secret police station in New York was broken up and the US government is thinking seriously about banning TikTok. So China responds the way it always does, by demanding we either let them get away with whatever they want or they’ll punish US companies and people at random.

Speaking specifically of the Chinese investigation of Micron, Sen. Jim Risch said, “This move further helps the American people see China for what it is — an aggressor and a bully that was never interested in true economic partnership.” He is not wrong.