Foxconn probe, GroupM arrests show China tough for foreign business

• Recent events in China should rattle anyone looking to do business there.
• On Monday, authorities launched several investigations into Taiwanese Apple supplier Foxconn.
• That follows shock arrests and allegations of bribery at the Shanghai offices of US agency GroupM.

Recent events in China should give pause to foreigners looking to do business there.

In the past 48 hours, the news emerged that Chinese authorities launched multiple investigations into Taiwan-based Foxconn, an essential supplier for Apple’s iPhone. The company is facing tax audits and investigations into its land use, Chinese media reports said. Foxconn is a major employer in China with hundreds of thousands of workers. The probe may be political, sources told Reuters.

And in Shanghai, Chinese police raided the offices of WPP-owned media agency GroupM, detaining one senior executive and later two more former employees, The Financial Times and other outlets reported. The employees are being held over allegations of commercial bribery, per reports.

The probes and arrests are likely to further chill foreign business activity in China. They also follow a warning from the FBI and other international spy agencies of the ongoing risks of doing business there — namely getting spied on and business ideas stolen.

Beijing has ramped up counter-espionage laws over the last year, giving it wide latitude to investigate perceived threats to national security. Probes into firms with foreign ties have duly followed.

Blue-chip consultancy Bain and New York-based due-diligence group Mintz have both been targeted by raids this year. In March, five Mintz Chinese employees were detained by authorities.

Outwardly, China’s leaders have emphasized the country is open to foreign investment. “Both Chinese investment overseas and foreign investment in China have boosted friendship, cooperation, confidence and hope,” said Chinese premier Xi Jingping earlier this month at a summit on the country’s Belt and Road infrastructure initiative.

Those statements have contrasted with crackdowns and raids in the private sector.

In May, Dan Harris, a Seattle lawyer who works with foreign companies in China, told The New York Times he had seen businesses looking to reduce their presence in China without abandoning the market altogether.

The investigation at Foxconn also has implications for Apple.

Foxconn’s founder, Terry Gou, announced his Taiwanese presidential bid in the summer, citing links with major tech companies including Apple as protection against Beijing’s potential retaliation. In August, Gou said it would only hurt China’s reputation and interests if it confiscated the company’s assets.

“If the Chinese Communist Party dares to do this, which country, which investment fund, which company would dare to invest in China?” he said.

CEO Tim Cook unexpectedly visited China this week in his second trip of 2023, underscoring the market’s importance both for production and sales.

During his visit, Cook met with commerce minister Wang Wentao, who emphasized that the country welcomed Apple along with other multinationals, a statement from the Chinese ministry said.

Yet Apple has been struggling in China after disappointing sales of the new iPhone 15, and amid reports the company had been outpaced in some areas by Chinese competitor Huawei.

Beijing also reportedly banned the use of iPhones by government officials. Although the Chinese government later denied these reports, Apple suffered a $200 billion market capitalization loss in the days that followed.

Representatives for GroupM and Foxconn did not immediately respond to Insider’s request for comment, made outside normal working hours.