China's business climate worsens due to executive arrests and Foxconn probes

Recent events in China have raised concerns for those looking to do business in the country. Taiwanese Apple supplier Foxconn is facing multiple investigations by Chinese authorities, including tax audits and investigations into its land use. The company, which employs hundreds of thousands of workers in China, is an essential supplier for Apple's iPhone. The motives behind the probe are unclear, but some sources believe it may be politically motivated.

In addition, Chinese police have raided the offices of WPP-owned media agency GroupM in Shanghai. One senior executive has been detained, along with two former employees, on allegations of commercial bribery. GroupM has stated that it is cooperating with authorities and conducting its own investigation. The company has terminated the employment of the executive and suspended trade with any external organization involved in the police enquiries.

These probes and arrests are likely to have a chilling effect on foreign business activity in China. They follow a warning from the FBI and other spy agencies about the risks of doing business in China, including espionage and intellectual property theft. Beijing has recently strengthened its counter-espionage laws, giving it broader powers to investigate perceived threats to national security. This has resulted in probes into firms with foreign ties.

While China's leaders have emphasized the country's openness to foreign investment, crackdowns and raids in the private sector have contradicted these statements. Some businesses have already begun reducing their presence in China without completely abandoning the market.

The investigation into Foxconn has implications for Apple, as the company heavily relies on Foxconn for iPhone production. Foxconn's founder, Terry Gou, has cited his connections with major tech companies, including Apple, as protection against potential retaliation from Beijing. Apple's CEO, Tim Cook, recently visited China to underscore the market's importance for production and sales. However, Apple has been facing challenges in China, including disappointing sales of the new iPhone 15 and competition from Chinese rival Huawei.

Overall, recent events in China, including the investigations into Foxconn and GroupM, highlight the risks and uncertainties of doing business in the country. It remains to be seen how these developments will impact foreign investment and business activity in China moving forward.


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