Foreign Firms Shaken By Fresh Arrests and Investigations by Chinese Authorities

Foreign Firms Shaken By Fresh Arrests and Investigations by Chinese Authorities
Foxconn factory workers assemple Apple iPhones in Taiwan. (iphonedigital via Flickr)

The Lede: Reports of Chinese regulators cracking down on foreign firms including Foxconn and GroupM over the weekend are perpetuating the risks to foreign businesses and chilling their operations in China as authorities have ramp up domestic enforcement against foreign firms for perceived or stated national security concerns. 

What We Know:

  • On Sunday, Chinese authorities said that they were conducting tax audits and reviewing land use by Taiwanese electronics contract manufacturer Foxconn. The company’s public arm Hon Hai Precision Industry said it was collaborating with Chinese authorities. Tax inspections were conducted on key Foxconn enterprises in Guangdong and Jiangsu provinces while on-site land use investigations took place in Henan and Hubei province locations. The crackdowns come just months before Taiwan’s January presidential election.
  • On Saturday, Shanghai police said that it had detained a senior executive of an advertising agency and two other individuals. The individuals were all linked by the Financial Times to the advertising agency GroupM, which is owned by the British firm WPP. The employees are being held over allegations of commercial bribery. GroupM said on Monday that it had fired the executive
  • GroupM China's CEO and country managing director for WPP China, Patrick Xu, was questioned by police but not detained.

The Background: In July, China broadened the scope of its already sweeping counter-espionage law in a move that analysts warned could create further legal risks or uncertainty for foreign businesses, as well as journalists and academics. There have been significant crackdowns on international consulting firms. Earlier in the year, Chinese police confiscated devices and interrogated staff at Bain’s headquarters in China in a probe regarding sensitive information. The office of U.S. corporate due diligence firm Mintz Group was also raided by Chinese authorities and five local staff were detained for allegedly conducting unapproved statistical work in the country. At the end of March, Chinese authorities launched a cybersecurity review of U.S. chipmaker Micron Technology.

Likely Outcomes:

  • Chinese authorities are likely ramping up pressure on Taiwan’s Foxconn in anticipation of the presidential election on the island at the beginning of 2024. Beijing will probably keep it up for the next months and may pull off the gas a bit at that point. China may consider the political implications on Foxconn founder and presidential candidate Terry Gou a worthwhile trade-off for some industry turmoil in the short term. Moving forward, the Chinese government may prioritize political and national security considerations ahead of economic ties with Western-aligned countries.  
  • The heightened possibility of detention, on top of crackdowns and raids, adds additional layers of risk for any foreigner doing business or working for a firm in China. This can be considered a significant enough escalation by Chinese authorities to deter even more foreigners businesses from conducting operations in the country. There may be businesses that have been considering operations in China that will close the door on that option and look to other countries, perhaps in the Indo-Pacific region.  


“China’s ongoing crackdown on foreign business operations continues to discomfit the investment community. At a time when China’s economy sorely needs to re-engage with investors, policy moves instead reinforce doubts over basic investability.” – Brock Silvers, chief investment officer at Kaiyuan Capital

"In the past, it was thought that because China wants to have sustained economic growth, it was willing to compromise and wouldn't do something that's politically damaging. But if you think about the last few years, they've been sending terrifying signals, and they know that.” – Dongshu Liu, assistant professor in Chinese politics at the City University of Hong Kong

"If the Chinese Communist Party dares to do this, which country, which investment fund, which company would dare to invest in China?” – Terry Gou, founder of Foxconn and Taiwanese presidential candidate

Good Reads:

China is a stormy place to do business right now after shock exec arrests and Foxconn probes (Business Insider)

Apple iPhone maker Foxconn being investigated in China as founder runs for Taiwan presidency (CNN)

Foxconn: China probes warn Taiwanese to Gou figure (Financial Times)

WPP fires executive detained on bribery charges in China (Reuters)