Capvision and the Future of Expert Networks in China

Over the past year, China has been actively luring global investors to commit capital to its higher-end industries like healthcare, information technology, engineering, and luxury goods. 

Troves of Chinese city and business officials have made countless trips to Asia and Europe since December of 2022 in an attempt to rake in investments as local governments try to hit growth and employment targets—and more importantly, lower China’s $9 trillion debt. 

And while China’s population of 1.4 billion is an attractive aspect of its market to foreign investors, recent events have proven that President Xi Jinping is intent on controlling the narrative he wants to share with his prospects. 

Recently, Chinese state broadcaster CCTV singled out Shanghai-based Capvision Partners, a consulting company, for failing to comply with China’s national security laws this past month. Capvision is just one of many companies recently subjected to “investigations” in the mainland. 

As events of this nature unfold abroad, it is clear that due diligence, the reliability of expert calls, and consulting services from China have come into question—and not just for foreign investors.

Below, we dive into these recent happenings within China, the impact these “arbitrary” data oversight laws could take on foreign investments, and how you can find reliable insights with AlphaSense.

China’s Control Over State Information

While the unwarranted investigations into Capvision stirred controversy overseas with investors, this isn’t the first time a consulting firm has had a brush with Chinese officials.

In March, U.S. due diligence firm Mintz reported that police raided its Beijing office and detained Chinese staff members. Similarly, in April, Chinese police came to Bain & Co’s Shanghai office to question employees (and possibly seize their cell phones and laptops). 

But what threat do these expert network companies pose against Jinping’s plan to reap foreign investments?  

Firms like Mintz and Bain & Co. conduct diligence services, meaning companies and investors employ them to determine whether suppliers are complying with rules and regulations—not just in China, but in other jurisdictions as well. They also audit supply chains, among many other services.

These investigations into whether rules and regulations are being followed go against the grain of legislation enacted for data security in China. Like many global nations, China has been proactive in the last decade to regulate data security, passing a law in 2021 on the protection of information related to national and economic security, as well as on issues of public interest.

Additionally, Chinese lawmakers passed an expansive update to Beijing’s anti-espionage legislation in April, banning information sharing related to national security. However, authorities did not explain what constitutes “national security” and sought to broaden the definition of spying. 

And if this didn’t already raise the eyebrows of foreign investors, Beijing recently restricted foreign subscriber access to certain financial and economic data of Chinese firms on Wind Information portals. Similarly, the China National Knowledge Infrastructure, the largest academic database in China, notified several overseas universities and research institutions that their access will be limited as of April. 

China’s Claims Against Capvision

China has accused Capvision of offering consultancy services to foreign institutions with “complex backgrounds” as a cover-up to steal state secrets and intelligence in key sectors while evading the law. 

Further, Chinese authorities believe that Capvision accepted more than 2,000 remittances from hundreds of overseas companies, totaling $70 million between 2017 and 2020, according to CNBC.

Supposedly, Chinese state-owned CCTV shows Capvision tapping on a vast “network of experts” of about 300,000 people in areas ranging from domestic policy research, national defense, and military technology to banking, finance, and medicine. 

The CCTV program also claims to have evidence of consultants disclosing information relating to the number of unnamed military aircraft on the inventory of a particular institution or company.

Global Response and Concerns 

While Capvision plans to address the concerns raised by Chinese authorities about its negligence of national security responsibilities (going as far as having formed a three-person internal “compliance committee”), other global investors are seeing the debacle in another light. 

Recently, the American and European Chambers of Commerce in China expressed concern over China’s intervention. In their eyes, this string of investigations risks heightening uncertainty at a time when European companies are looking for clear signs that China’s business environment is becoming more reliable and predictable—qualities absent from the EU market due to the Russia-Ukraine conflict. 

Without more details on what is permissible regarding due diligence and consulting services, prospective investors may find it challenging to be thorough before committing to deals, particularly given the nature of doing business in China. More so, foreign companies that have set up shop in China are seeing these investigations as an intimidation tactic by the State.

“If you put that together with some of the punitive actions that the government here in Beijing has taken against several American companies recently, we’re very concerned about this. We intend to have a full discussion with the government here about it.”

“We think American businesses here ought to be free of intimidation from the government, and … they shouldn’t be targeted mainly because there are political differences and competitive differences in the U.S.-China relationship.”

– U.S. Ambassador to China Nicholas Burns | Korea Times

The Personal Information Protection Law (PIPL), which went into effect in November 2021, ultimately gives Chinese data subjects new rights as it seeks to prevent the misuse of personal data.

Along with the Data Security Law (DSL) coming into force, which requires business data to be categorized by different levels of importance and puts new restrictions on cross-border transfers, these regulations will have a significant impact on how companies collect, store, use, and transfer data.

The PIPL resembles the EU’s General Data Protection Regulation (GDPR) as it allows Chinese consumers the legal right to access, correct, and delete their data collected by businesses. However, the law also impacts offshore data processors that provide services or analyze individuals and also includes stringent penalties.

Fines can be as much as RMB50 million (approximately US$7.8 million) or up to 5% of a company’s turnover from the past fiscal year. Additionally, businesses may be required to suspend operations until they demonstrate compliance. There are also impacts on individuals, with anyone directly responsible for data protection personally facing fines of up to RMB1 million.

These penalties ultimately present the question: can profitable business be done in China? 

The Future of Expert Networks

Without clear regulations outlined by China as to what information can be shared yet stringent penalties for firms that share “confidential” insights, the production of expert networks and resulting transcripts in China is actively being thwarted. 

Ultimately, China’s campaign against expert networks is making it more difficult than ever for foreign investors to research even basic information on potential acquisitions, Chinese partners, and suppliers. This is partially by design as Beijing has recently and methodically curtailed foreign access to once openly accessible public data such as academic theses and business ownership records.

The bottom line: Capvision introduced a lucrative business model to China by matching investors and other clients with inside sources who were paid up to $10,000 an hour for industry intelligence. 

In targeting what claims to be China’s biggest “expert network” consulting company, authorities not only threaten Capvision but an entire supply chain of information that overseas investors, Chinese banks, and foreign businesses rely on. 

Finding Reliable Insights 

Finding valuable information on your industry, competitor, or market requires a tool that separates the noise from the insights you need. With AlphaSense, there’s no need to meticulously search through multiple expert network libraries or spend hours manually reviewing documents to find crucial insights. The last thing you need is to be left in the dark on crucial global events that could significantly impact your company or investments.

Our platform uses proprietary AI technology and an extensive library of expert calls so users can glean fresh insights on new products, market sizes, and sector occurrences shaping their industry. 

Discover how the power of AlphaSense’s Expert Transcript Library can keep you informed on market movements and help you stay ahead of your competitors with our info sheet, Critical Areas Missing from Your Research: Expert Transcript Library.

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