Why China Is Raiding Foreign Companies At Dawn

China’s anti-corruption forces have been aggressively hunting down officials hiding in the West, and it turns out they’re also trying to root out supposed corruption at foreign companies doing business in China.

Multinational corporations with Chinese outposts have become increasingly aware that the Chinese government will investigate them for corruption — sometimes during unnanounced early-morning raids.

It’s possible China’s president, Xi Jinping, is cracking down on foreign firms intentionally to favour domestic competitors, as David Blumenthal has written in Foreign Policy. The theory goes that China can increase the odds that its own businesses will succeed in the global market if it can centralize political and economic power and make it more difficult for foreign businessmen to compete.

“The [Chinese] economy is moving away from an export model to domestic consumption and foreign companies don’t have the same role they used to have,” Jeremy Gordon, a consultant, told Forbes last year.

Dawn raids of foreign firms’ offices are common during corruption investigations, corporate attorney Nathaniel Edmonds told Business Insider. Officials from China’s Administration of Industry and Commerce (AIC)
show up unannounced and search desk drawers, computers, files, lockers, safes, and even vehicles for documentation that could support a corruption investigation — and incriminate the firm, as Reuters has written.

“Companies need to be prepared with relevant dawn raid procedures to ensure that local Chinese offices are not unnecessarily turning over sensitive materials that could put the entire company at risk,” says Edmonds,
former Assistant Chief of the Foreign Corrupt Practices Act Unit of the Fraud Section in the Department of Justice.

Multinationals have hired lawyers to provide them with “dawn raid training” — seminars, courses, and coaching designed to prepare employees for intense questioning. Employees are also trained in Chinese cultural niceties, such as offering investigators tea or food to demonstrate cooperation, Reuters reported.

Mercedes chinaCarlos Barria/ReutersA woman walks past a Mercedez-Benz car dealership in downtown Shanghai August 5, 2014. Mercedes was investigated by Chinese officials last year for allegedly violating anti-trust pricing laws.

In the last few months of 2014 alone, China’s government reportedly investigated Microsoft, Qualcomm, and Daimler.In September, UK pharmaceutical company GSK paid a record $US489 million fine to China for allegedly bribing doctors to prescribe its drugs,Reutersreported.

Whereas senior executives of foreign firms were once given VIP treatment in China, they are now being subjected to prolonged questioning by Chinese investigators.

“There are concerns about the lack of transparency and length of time people are being held for questioning,” Edmonds said. “There is a hope for a minimum level of transparency [in China], which hasn’t always been present.”

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.