With the recent slew of foreigner arrests in China for what many assume to be political reasons, the number of clients asking me about the risks to their employees in China has soared. This post is meant to help quantify the arrest/seizure risks to foreigners in China.
1. China as One Giant Casino
In How to Maintain Control of Your China Operations: WFOE or JV or Something Else? my law firm’s lead international attorney, Jonathan Bench, wrote about the “control issues” companies face when doing business with China. I posted Jonathan’s post on LinkedIn and got an interesting and insightful comment from Corbett Wall, who has been doing business with China (in various capacities and at high levels) since 1994. Corbett’s comment was as follows:
You have as much control [when doing business with China] as you would playing poker in someone else’s house, based on their house rules, using their credit line, their dealer, and their cards. If you start winning, someone locks the door behind you.
Corbett is right to compare China to a casino, yet his comment is not as bad for doing business with China as it initially sounds. Let me explain, starting with my LinkedIn response to Corbett’s comment:
That’s a good analogy. What I always say about China is that if you sit back and do nothing to protect yourself, I can guarantee you the results, and they will not be good. If you protect yourself in advance, you have a shot. The game is rigged, but just like at a casino, they must let you win often enough so that you and your friends keep coming back.
2. China’s 90-10 Rule
I often talk about how China abuses foreign companies and foreigners ten percent of the time, and in 2021, I explained this to Congress:
As a lawyer, the best example I see of the tension between investment and economics on the one hand and CCP power and control, on the other hand, is China’s court system. Our clients often ask me about the fairness of China’s courts and my answer is always the same. If you are suing a Chinese company for breaching your contract to make rubber duckies, you will get a fair trial. If you are suing a Chinese government company for stealing your cutting-edge semiconductor IP, well . . . good luck. Many China lawyers call this the 90-10 rule. Ninety percent of the time the Chinese courts will rule fairly because that allows China’s economy to function and that benefits the CCP. But when a case is important for the CCP, fairness gets tossed out the window as the court will always rule to benefit the CCP. Legal scholars describe this as rule by law, as opposed to rule of law.
The same is true for Chinese IPOs in the United States and for VIEs. China allows select companies to IPO in the US — oftentimes via VIEs – because it wants the money. But if for any reason the balance shifts, the CCP will – as it has done frequently lately – block them.
Variable interest entities (VIEs) are an excellent example of how the CCP operates. The CCP has allowed VIEs because they bring in foreign capital, but it has never formally legalized them. Now that the CCP is making clear in various ways it no longer values VIEs as much as it once did, investors and underwriters are panicking. But this writing – actually, more accurately, lack of any writing – has been on the walls all along for anyone interested in looking. VIEs have always operated in a legal grey zone; never clearly legal or illegal. This grey zone allows China to permit them while also allowing them at any moment to prohibit them or shut them down.
The same is generally true for China’s new laws and regulations on data privacy, which are geared more towards giving the Chinese government access to data than towards protecting Chinese consumers. The media has recently come out with many articles on China’s “new” data privacy laws, but at their core, the new laws do not differ much from those that preceded them. The Chinese government has for years had essentially full access to all data, even data held by foreign companies operating overseas. The new laws mostly just reiterate and clarify this and should be viewed not so much as new laws, but as the CCP signaling that companies that collect data the CCP does not want them to collect or that seek to hide data from the CCP are at risk of government action.
China’s 90-10 rule means that the foreign company that does everything correctly (as per the CCP) will prevail roughly 90 percent of the time. Is China’s legal system rigged? Should you view China as one giant casino? Yes, to both, but do not ignore that China is set up to benefit those who act correctly about 90 percent of the time. On the flip side, it is rigged to disfavor those who act incorrectly roughly 100 percent of the time. If you have a 90 percent chance of crossing a street safely at one corner and a near 100 percent chance of getting hit by a car at another corner, which corner will you choose? Your odds are better than 90 percent because you can assess your odds before you go into China and while still there.
Even though your odds at a Macao casino are stacked against you, you will still win close to 50 percent of the time because that casino knows that if its players never win, it will make considerably less money because nobody will return. The CCP knows the same thing about foreign companies, and so despite tilting the odds against them, it still allows foreign companies that play by CCP rules and laws to win often enough to keep playing and not tell everyone else not to play. Feel free to view China as one giant casino, but do not for a minute think you can never win or that how you play does not influence your chances of winning.
3. Your Actions Impact Your China Risks
If you are having your rubber duckies made in China, you probably have about a 90 percent of being treated just fine by China (rigged system or not). If you are in the business of making high-end semiconductor chips (or anything else targeted by Made in China 2025) your risks of being treated unfairly will be considerably higher because the Chinese government wants your technology more than it wants you saying good things about China, or even continuing to manufacture in China.
Though the rubber ducky company will nearly always do better than the semiconductor company, both companies would reduce their China risks (or at least their potential losses) by maintaining as light a footprint in China as possible. For an example of a company that lightened its China footprint, see How to Close Your China Business The Airbnb (Right) Way. Russia is a good example of the benefits of having a light footprint, as those companies without brick-and-mortar operations there generally incurred smaller losses than those with valuable assets in Russia.
4. China’s Personal Risks
The risks to foreigners in China are much like the risks to companies, only scarier becase they are more personal. China’s recent arrests of five Mintz Group employees and an Astellas Pharma employee have led to many of our clients asking whether they should be sending employees to China or pulling them out.
Before I discuss the risks to foreigners in China, I feel compelled to explain why I feel qualified to opine on such risks.
My ability to assess risks comes from representing companies internationally for a long time. My representations have given me a bird’s eye view of what creates risks for foreigners. My law firm has worked on dozens of matters involving foreigners being held hostage or arrested in China. Many of those cases involved people arrested for everyday crimes that would have led most everyone caught to be arrested. Some of those cases involved people arrested for committing crimes that others regularly commit in China and get away with. Some of those arrests were of people I believed were chosen to be arrested to make a point or, to use the Chinese expression, to kill the chicken to scare the monkey.
In nearly all instances, it was clear to me that my client had been chosen only somewhat at random to be the chicken. Though there likely were tens of thousands who had done what my client had done without getting arrested, my client was chosen because of what they had done. In other words, China may have chosen one out of a thousand people to arrest but that 1,000-person denominator was those who had done something wrong and not the millions of people who hadn’t. So, though my client could complain about having been singled out, they couldn’t really complain about being singled out without having done anything wrong. This means that the truly innocent are at less risk for arrest than those who cut legal corners.
In addition to the many China arrest and hostage matters I have handled, I have also worked on similar matters involving Russia, Papua New Guinea (where I negotiated in person with a governor), Venezuela, Iraq, and Somalia. I also co-wrote a long paper for the Thunderbird Review on Commercial Hostages in International Business Disputes and I make it a point to stay current on foreigner arrests and hostage situations all around the world.
In assessing the risks to foreigners in China, I first gather as much information as I can about the foreigner at issue. I then assess their risks as low, medium, or high. Nearly all are low, a few are medium, and only once did I come back with a high. I think high-risk assessments are rare because those at high-risk usually know their risks and simply choose not to go.
After I help companies with this relatively rapid-fire (and no charge) risk assessment, I usually pitch them on paying for our risk mitigation services, which pretty much every company involved with China should be using. This service involves our figuring out and then seeking to patch our client’s China weak points. Sometimes the patch is simply bringing one person home. Other times, it is a complete restructuring of their China operations to reduce risks as much as possible while reducing profits or efficiency as little as possible.
Foreigners arrested in countries like China and Russia are usually singled out for both what they did and who they are. Fairly often, they are arrested just for what they did. For example, a foreigner caught selling heroin in China is likely to be arrested no matter who they are. But an individual who refuses to leave a bar at closing time is more likely to be arrested if they are already on a CCP list for having tweeted how Xi Jinping resembles Winnie-the-Pooh.
The more China wants to scare the monkeys, the more likely they are to arrest someone strictly for who they are. These sorts of arrests initially appear to be the most random, but upon closer inspection, they seldom are. Russia’s recent arrest of Wall Street Journal reporter Evan Gershkovich was based entirely on Gershkovich being a reporter for a leading American newspaper at a time when the United States is consistently embarrassing Russia. China’s arrest of Canadian Michael Kovrig was in retaliation for Canada arresting Huawei’s Meng Wanzhou and Kovrig was chosen because he had been a foreign service officer for Canada’s foreign ministry.
In measuring a specific foreigner’s China risks, I typically look at the following, in no particular order:
5. Factors That Impact Personal China Risks
a. What’s Been Said or Done
I assume the CCP knows pretty much everything anyone has ever said about China publicly or quasi-publicly (and even some of the things said privately), specifically including anything said at a college or university, anything said before a China-related not for profit, and anything said to one of your Chinese employees. This of course also includes any public government testimony, and it also likely includes anyone seen going into a US or EU government office that seeks to contain China. If someone in your company has said something bad about China, everyone in that company is at higher risk. If someone important in your company is known for always defending China, everyone in that company is likely at lower risk. Anyone who has worked for anti-China media, or an anti-China think tank, university, political party, or politician is likely at greater risk.
b. Nationality/Race/Ethnicity/Religion
Nationality clearly influences personal risk. China has a long history of mistreating Africans and Filipinos, including arrests for no real reason. I think this is a combination of racism and an unequal power dynamic. People from small countries that China does not like, such as Lithuania, are at greater risk. People from large countries that China does not like, such as the United States and Japan are also at greater risk. People from countries with which China has an “unlimited friendship,” i.e., Russia, are at low risk.
Ethnicity also influences risk. Immediately upon hearing of Russia’s arrest of Evan Gershkovich for spying, I posited that he was probably an ethnic Russian, and I was right. See Evan Gershkovich Loved Russia, the Country That Turned on Him, which mentions his “parents fled the Soviet Union.” I posited Russian ethnicity because Russia tends to view Russians who have left Russia with varying levels of disdain. China is the same way. I think most (maybe even all) countries have an element of this. Heck, I have relatives from the Midwest (from whence I originally came) who on some level still seem to resent my choosing to “reject” where they live by moving to Seattle. Ethnic Chinese from Canada, the United States, Australia, Chile, France, or wherever, are at greater risk of being arrested or held hostage in China than a Caucasian from those same countries. I also think China believes that ethnic Chinese are systematically discriminated against outside China and their ability to arrest an ethnic Chinese person with impunity reinforces that belief among China’s citizenry — which belief the CCP likes to be reinforced.
Race is also a risk factor, and from what I have seen, Black people (from anywhere) are at greater risk in China. I base this on having seen/heard of a disproportionate number of Black people being arrested in China. Black Americans especially seem at greater risk of being arrested in China for alleged driver disputes, for being in a bar when a fight breaks out, and for cannabis use. I see this as a combination of racism by Chinese citizens who believe they can easily get Chinese police to make these arrests and the willingness of Chinese police to do so. Just as the Chinese government believes there will be less international fallout from arresting an ethnic Chinese person, I am they also seem to believe there will be less international fallout from arresting a Black person, and frankly (and sadly) I think they’re right.
Religion also impacts China risk. People who are known to be religious and/or involved with a religion that the Chinese government particularly dislikes, are greater risk. A person who attends religious services in China may also be at greater risk.
c. Military/Government Experience
Way back in 1996, a client-friend of mine was arrested for no reason in Russia. Upon his arrest, someone (for the life of me, I cannot remember whether it was a mutual friend, someone from his family, or someone from the U.S. Government) called to tell me not to mention that this person had learned Russian at the Monterrey Institute or that he had served in the military. I stayed silent but after my friend was released, he told me that his Russian interrogators knew absolutely everything about him, and they asked him questions regarding all the above to determine whether he would be telling them the truth or not.
Countries like Russia and China love arresting people with a government and/or military background because those backgrounds help bolster their claim that the person is a spy and/or is up to no good. Anyone who has served in the military or worked for pretty much any government in any country the CCP dislikes is at greater risk.
d. Unfriendly Company Experience
As mentioned above, anyone who has worked for anti-China media, or an anti-China think tank, university, political party, or politician is at greater risk. If your existing employer has a CEO or other high-level personnel who the CCP deems unfriendly to China, you are at greater risk. If your employer company is not generating much in the way of jobs or taxes for China, you may be at slightly greater risk. If your employer company is engaged in a business/industry that the Chinese government does not like, you are at greater risk. If your employer company does not pay its China taxes or mistreats its Chinese employees or engages in any illegal behavior (no matter how small) and you are high up in the company, you are at greater risk.
e. Geography and Geopolitics
People sometimes get arrested in China so that the CCP can send an overt message to a foreign country or to China’s own citizens. These arrests are usually in retaliation for something done by a foreign country.
It is widely believed Russia’s recent arrest of Gershkovich (see above) was to retaliate for the United States arresting a Russian on espionage charges and/or for the United States helping Ukraine. Most everyone believes that the “two Michaels” from Canada, Michael Spavor and Michael Kovrig were arrested in retaliation for Canada arresting Huawei’s Meng Wanzhou. China’s recent Mintz Group arrests are believed to have been to retaliate against the United States for its efforts to block semiconductor shipments to China and/or for the United States embarrassing China regarding its spy balloon and/or for publicly pressuring China not to arm Russia in its war against Ukraine. China’s recent arrest of the Japanese businessperson (who, near as I can tell, has yet to be named) is believed to be in retaliation for Japan joining with the United States and the EU to block semiconductors from reaching China.
As per Nikkei Asia, China has a long history of arresting Japanese businesspeople as a retaliatory measure against Japan:
Under President Xi Jinping, China has continued to crack down on foreign nationals in the name of national security. Since 2015, at least 17 Japanese citizens have been detained for allegedly engaging in espionage. These individuals range from geological researchers to trading house employees to academics.
The biggest issue is the lack of clarity on where China’s definition of “national security” begins. This opacity makes it impossible for foreign companies to adequately prepare and train their employees for assignments or business trips to China.
If companies are constantly afraid that their employees could be detained at any time, they will have little option but to refrain from sending staff to China. This could eventually lead to less trade and investment between the neighbors. This hurts Beijing, too, by disrupting its plans for steady economic growth.
In 2010, shortly after a Chinese fishing boat captain was arrested in Japan over the collision between his trawler and two Japan Coast Guard vessels, four employees of Japanese construction company Fujita were suddenly detained in China’s Hebei province. Many saw this as a retaliatory move by Beijing. China has taken similar actions with citizens of other countries.
Despite the relatively large number of foreigners who get arrested or held hostage by China every year (17 people arrested from just Japan for espionage in the last 8 years!), the overall risks for any given foreigner in China is extremely low, and the above is not meant to imply otherwise. It is meant to help you quantify your risks.
So go ahead and describe China as one giant casino, full of risks. And go ahead and call its legal system rigged, because in many cases it is. But do not let anything be an excuse for you not doing whatever you can to reduce your own China risks or to protect your employees there.
April 7, 2023 Update: I received the following email (stripped of any possible identifiers) from a Canadian foreign affairs person (I’m being as vague as possible here) and wanted to post it because I think it could prove helpful to many.
Great article on personal risk in China. I’ve thought a fair amount about this in the conext of arbitrary detention in state to state relations.
I was in Shanghai when the Michaels were taken and I mentioned their detention to a Chinese executive with whom I was meeting. He told me “oh yes, Chinese authorities have a list of 100 Canadians they can pick up and interrogate at any time”. Two other people later told me about the list. One said that I might be on it because of my work identifying tricks and tactics that have been used by against foreign businesses in China.
I don’t believe I was on the list –but I think China likely has them for every country. I believe it’s primarily people who live in China, rather than visitors. I also think they choose people with sensitive information about other individuals that the CCP’s authorities can wring out of them during their six month detention. I think the Michaels would have been at the top of Canada’s list.
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- As you mentioned Michael Kovrig had been a diplomat, and so he probably had connections with Chinese citizens on whom the authorities would want information.
- Michael Spavor regularly went to North Korea with high profile guests and met its leadership. The CCP likely wanted whatever interesting stories he could tell them about key individuals.
- Canadians Kevin and Julia Garratt were detained in retaliation for the United States’ attempt to extradict Su Bin from Canada in 2014. They ran a restaurant and a house church in Dandong for 25 yrs until their detention in 2014. Their book about their detention is Two Tears on the Window: An ordinary Canadian couple disappears in China. A true story.
- Cheng Lei’s job as CGTN’s TV Business anchor means she may have information on CEOs and others that the Chinese authorities could target in their anti-corruption campaign. She was likely at the top of Australia’s list of 100.
These are just examples, but as you can imagine, a straightforward case doesn’t require six months of 8 hour a day interrogation in a tiger chair to get the information needed in court. All that extra time is likely to get at all this other information the arrested might have had access to in the course of their work. So in assessing risk, I would look at not just who the person is, but also at who else that person knows who Beijing would want to get information on.
One positive development is the Declaration on Arbitrary Detention in State-to-State Relations which now has 69 countries, plus the EU as signatories. Nations must work together to combat this horrific practice that can upend peoples’ lives for years.
Thank you so much for your analysis. It’s always interesting and well thought out and researched.
