10. Political and Security Environment
The risk of political violence directed at foreign companies operating in China remains low. Each year, government watchdog organizations report tens of thousands of protests throughout China. The government is adept at handling protests without violence, but given the volume of protests annually, the potential for violent flare-ups is real. Violent protests, while rare, have generally involved ethnic tensions, local residents protesting corrupt officials, environmental and food safety concerns, confiscated property, and disputes over unpaid wages.
In recent years, the growing number of protests over corporate M&A transactions has increased, often because disenfranchised workers and mid-level managers feel they were not included in the decision process. China’s non-transparent legal and regulatory system allows the CCP to pressure or punish foreign companies for the actions of their governments. The government has also encouraged protests or boycotts of products from certain countries, like Korea, Japan, Norway, Canada, and the Philippines, in retaliation for unrelated policy decisions. Examples of politically motivated economic retaliation against foreign firms include boycott campaigns against Korean retailer Lotte in 2016 and 2017 in retaliation for the decision to deploy the Thermal High Altitude Area Defense (THAAD) to the Korean Peninsula, which led to Lotte closing and selling its China operations; and high-profile cases of gross mistreatment of Japanese firms and brands in 2011 and 2012 following disputes over islands in the East China Sea. Recently, some reports suggest China has retaliated against some Canadian companies and products as a result of a domestic Canadian legal issue that impacted a large Chinese enterprise.
There have also been some cases of foreign businesspeople that were refused permission to leave China over pending commercial contract disputes. Chinese authorities have broad authority to prohibit travelers from leaving China (known as an “exit ban”) and have imposed exit bans to compel U.S. citizens to resolve business disputes, force settlement of court orders, or facilitate government investigations. Individuals not directly involved in legal proceedings or suspected of wrongdoing have also been subject to lengthy exit bans in order to compel family members or colleagues to cooperate with Chinese courts or investigations. Exit bans are often issued without notification to the foreign citizen or without a clear legal recourse to appeal the exit ban decision.
In the past few years, Chinese authorities have detained or arrested several foreign nationals, including American citizens, and have refused to notify the U.S. Embassy or allow access to the American citizens detained for consular officers to visit. These trends are in direct contravention of recognized international agreements and conventions.