China has launched ‘surgical’ retaliation against foreign companies following a US-led tech ban.

After five years of snowballing trade and technology restrictions in the United States under the leadership of President Donald Trump and Joe Biden, China has begun targeting Western interests in the country.

In the past two months, Chinese authorities have imposed new sanctions on U.S. arms companies Lockheed Martin and Raytheon, launched an investigation into U.S. chipmaker Micron, raided U.S. surveillance facility Mintz and arrested local employees, and arrested a top executive at Japan’s Astellas Pharma Group. . He hit London-headquartered Deloitte with a record fine. President Xi Jinping’s administration is considering blocking access to materials and technologies critical to the global auto industry, according to a Commerce Ministry review.

Beijing’s response to what it describes as a US-led “technology embargo” narrows Xi’s strategy to industries and companies that are unlikely to harm China’s interests.

“China has not abandoned its strategy of sanctions to turn to new retaliation, but it is going to pick off companies to show its frustration,” said Paul Heinle, a former adviser to US President George W. Bush. And Barack Obama.

But the decision to raid foreign companies and arrest workers has raised fears that Beijing will escalate its hostage diplomacy if relations with the West deteriorate.

The Mintz and Astellas cases prompted an urgent review of employee safety and the immediate suspension of some travel plans to China, two people at Foreign Risk Advisory Group said.

“This has been a wake-up call for the industry,” one of the men said. “It’s tough on due diligence players – the level of paranoia in China is very high – but it’s also affecting ‘blue-chip’ service firms and outfits like Bain, McKinsey and Boston Consulting Group.

Japan is particularly vulnerable to Beijing’s hostage diplomacy because it lacks its own sophisticated intelligence agency and lacks the tools to negotiate the return of its own citizens, experts say.

China in 2010 In 2014, 17 Japanese nationals were arrested after it passed an anti-espionage law. The Japanese Ministry of Foreign Affairs announced that five of them, including the Astellas employee, will be detained.

In February, China imposed new sanctions on Lockheed and Raytheon, two of the largest US defense companies. While the move signaled Chinese opposition to arms sales to Taiwan, it had no trade impact as the group was barred from selling military equipment to China.

Beijing’s investigation into Micron is seen as the clearest sign of a crackdown on national security that began last month.

Dexter Roberts, a senior fellow at the Atlantic Council, a Washington think tank, said he was surprised by Beijing’s ban because the US-led campaign to deprive China of key chip-making technologies struck at the center of China’s global high-tech output. desire”

Despite Beijing’s anger, Xi’s economic planners are careful not to derail efforts to use foreign investors to restart China’s economy after the outbreak. This means Beijing is expected to refrain from cracking down on companies and industries seen as critical to economic recovery.

“It goes back to the fact that China is dealing with a lot of challenges this year, especially on the economic side,” Roberts said. The last thing they need to do is allow themselves to be distracted by hostile relations with the US.

Following the Finance Ministry’s $31 million fine against Deloitte over audit deficiencies, experts expect increased pressure on the Big Four accounting firms.

Cheng Lin, a professor of accounting at the China Europe International Business School in Shanghai, said audit quality has long been a problem for foreign and domestic companies, but the “main drivers” are Beijing’s concerns about information and national security.

The auto sector is slated to review the Commerce Department’s technology export bans in 2022, including some rare earth materials and lidar technology used in mapping for driverless cars.

Tu Le, founder of Sino Auto Insights, a Beijing-based consultancy, said any decision to “arm up their dominance in the mining and refining” of materials used in the electric vehicle industry would “cause immediate concern to the US, Europeans, Japanese and Koreans.” Governments”.

Arthur Kroeber, head of research at Beijing-based consultancy Gavecal Dragonomics, said the bans could be used as leverage to negotiate easing of semiconductor controls.

Former CIA analyst and Asia expert Sue Kim expects Beijing’s retaliation to widen as US-China relations do not appear to be mending anytime soon.

“Beijing has many levers to pull because it has so many pieces in the US-China rivalry,” she said, “including putting pressure on US allies and partners whose economies depend on trade with China.”

Additional reporting by Primrose Riordan and Gloria Li in Hong Kong