China’s Targeting Of International Companies In Geopolitical Competition

Recorded Future has released its latest report from its threat research division Insikt Group – China’s targeting of international companies in geopolitical competition.

China is currently among the leading sources of geopolitically driven risk, given Beijing’s engagement in an escalating rivalry with the United States (US), assertive role in many potential flashpoints in Asia, and prioritisation of national security over economics.

Geopolitical competition involving China since 2017 has cost (or had the potential to cost) international businesses hundreds of millions of USD in revenue. In some cases, China’s treatment of businesses during geopolitical disputes and subsequent financial losses has further prompted companies to scale-back operations in or exit the country.

International businesses that might perceive their economic activities as separate from national politics, security, and defense must reexamine how their operations could be viewed from an adversarial and political perspective. The specific activities of a given company, the topics it works on, and how the results of its work might support perceived “anti-China” activities should all be considered in a comprehensive risk assessment.

For the majority of risks identified in this report, the level of impact to normal business operations and revenue opportunity is related to the level of a given business’s dependence on supply chains in China and reliance on (or hopes in) the Chinese market. The impact of other risks, such as those related to changing laws and the potential for disruptive conflict over territorial or sovereignty disputes, can also depend on the level of exposure to affected shipping lanes, air routes, and the markets of non-China participants.

Here is a summary of the report’s key findings, including mitigation measures for businesses having direct or indirect ties with China.

Geopolitical drivers causing China to take action against international businesses

Specific issues to which China has responded by taking action against international businesses

Include consulting with government officials and industry insiders, expressing concern for human rights in Xinjiang, supporting foreign government initiatives to inhibit China’s technology industry, and failing to align with China’s position on Taiwan.

• National security
  • China has almost certainly prioritised national security over economic development, leading to shifting interpretations of state law and law enforcement action against even once-accepted industries.

• Human rights
  • Increasing international scrutiny of human rights in China is creating likely state-supported boycott risks for businesses that attempt to express concern or comply with international sanctions.

• Technology competition
  • The US-China technology competition is almost certainly driving retaliatory and possibly preemptive product bans targeting international businesses operating in China.

• Territorial and sovereignty disputes
  • When foreign governments challenge Beijing on territorial and sovereignty disputes, China almost certainly targets those nations’ industries with embargoes.

• Other risks that must be considered include, but are not limited to, the potential for disruptive conflict along key shipping lanes, international sanctions regimes, and evolving data governance regulations in China and elsewhere.

Risks from China

• Industry surveys published in 2022 and 2023 show that US-China decoupling is a top concern — shifting policies in Western countries are causing the most anxiety, but there are also fears that China could retaliate against private enterprises.
• Other China-related anxieties include rising US-China tensions more broadly, consumer boycotts of foreign brands, and potential flashpoints in the South China Sea and Taiwan.
• In the current geopolitical climate, there are numerous compliance risks — changing laws, data governance regimes, and general trade and export restrictions in China, the US, and elsewhere. China’s territorial and sovereignty disputes are also fraught with risks similar to those that might be seen in a conflict involving any major economic region..
• To better understand the range of actions in Beijing’s toolkit and these special risks, Insikt Group surveyed 25 instances in which companies were the target of geopolitically motivated actions initiated by authorities in China. This sample of instances included overt forms of economic coercion — a well-documented element of China’s foreign policy — as well as actions such as bans of products on national security grounds and investigations of companies according to evolving national security priorities.
  • This included Australia’s investigation into the origins of COVID-19 which led to heavy tariffs and embargoes on Australian products.

• Specifically, since 2009, authorities in China and patriotic hacktivists have taken 8 types of actions against international businesses in efforts to manage perceived threats to China’s national security and other geopolitical challenges:
  • Cyberattacks
  • Boycotts
  • Embargoes
  • Exit bans
  • Product bans
  • Law enforcement and regulatory actions
  • Sanctions

Mitigation strategies

To avoid and mitigate the potential impact of risks created by the behaviour of authorities in China and patriotic hacktivists, as well as other risks associated with global geopolitical competition, international businesses should develop:

• Monitoring — Businesses should constantly monitor the domestic and international landscape as it pertains to China and their operations, and strive to stay informed of not only legal and regulatory developments, but also political and public sentiment developments that may forecast shifting interpretations of existing laws and regulations and other potential threats. Where possible, specific sets of warnings and indicators should be tailored to individual businesses for each of the risks.
• Diversification of supply chains and markets – While China will almost certainly remain an important element of businesses’ activities in the long-term, decreasing reliance on the country should mitigate potential losses from geopolitically motivated risks. Companies in sectors heavily affected by changing regulations and export controls should consider developing China-specific product lines that address China’s industry needs without violating outside restrictions.
  • Nvidia, for instance, has reportedly begun producing a slightly lower-performance graphics processor as an “alternative” product for the Chinese market to replace revenue lost due to US export restrictions on its more advanced chips.

• Resilience — With their specific conditions in mind, businesses should develop comprehensive crisis management plans with playbooks for addressing each risk type identified in this report. In many cases, such as with cyberattacks, these plans will likely overlap with existing crisis management measures. Moreover, businesses should develop clear channels for communicating warning indicators of risk or explicit risk developed or spotted Warning indicators (if and when available) should be used to begin initial crisis management preparedness before major risk events occur.

Furthermore, companies should strive to overcome potential siloes between parts of their business — such as operational and cybersecurity leadership, legal teams, strategy groups, and human resources departments — to holistically address emerging concerns.