ANALYSIS: China’s Heightened Use of ‘Exit Bans’ Creates Hostile Environment for Foreign Firms

Beijing’s move may accelerate exodus of foreign companies, expert says

Chinese paramilitary police in the Daxing International Airport in Beijing on Sept. 28, 2019. (Noel Celis /AFP via Getty Images)

A growing number of Chinese laws that enable “exit bans” has heightened fears of a more hostile environment for foreign companies operating in China.

Experts say that Beijing’s tactics go against its professed desire to bolster business confidence and foreign investment in the country and may trigger an accelerated exodus of foreign companies.

The Chinese regime has long banned dissidents from leaving the country, but in the years since Xi Jinping came to power (2012), the authorities have passed more laws to allow such bans and have applied them more broadly.

According to a recent report (pdf) by the Spain-based rights group Safeguard Defenders, there are currently 15 such laws in place, five of which have passed in just the last five years.

The increased scrutiny also comes as China’s rubber-stamp legislature, the National People’s Congress, passed an amended anti-espionage law and published it on its website on April 26. The legislation, which will be enacted on July 1, allows the authorities to impose exit bans on anyone—Chinese and foreigners alike—under investigation.

The report contends that the bans affect at least “tens of thousands” of Chinese nationals and “millions” if counting ethnicity-based cases for people such as the Uyghurs.

Foreign nationals are also increasingly targeted or threatened with exit restrictions, even if they are not suspected criminals.

At least two dozen U.S. citizens had been barred from leaving China over the past two years due to the exit bans, the report said, citing a 2021 estimation by John Kamm, founder and executive director of San Francisco-based Dui Hua Foundation, adding that the number may be grossly underestimated.

‘Search, Seize, and Detain’

With the “complex, vague, ambiguous and expansive” local laws, “any government body for any reason may issue an exit ban,” the Safeguard Defenders report said.

“Deliberately vague wording in the Civil Procedure Law means that individuals not even connected to the dispute can be trapped in China,” the report said.

“Irish businessman Richard O’Halloran was barred from leaving China for more than three years (2019 to 2022) because the company he worked for was involved in a commercial dispute, even though he wasn’t even working for the firm when the dispute began.”

There are also expatriates who have fallen victim to Beijing’s hostage diplomacy. The report said the Chinese Communist Party (CCP) uses this as a “tit-for-tat” retaliation against foreign governments or a tactic to extract concessions.

“Often, the action is more serious, such as arbitrary detention, or sometimes exit bans are used in the initial stages. For several years now, the US State Department’s travel advisory on China has warned that Beijing uses exit bans to ‘gain bargaining leverage over foreign governments,” it said.

“The targeting of some foreign journalists falls under this category,” it added.

The recent passage of the CCP’s new anti-espionage law is particularly worrisome for international companies in China. The law expands the definition of “espionage” and increases the state’s power to search, seize and ban individuals from entering and leaving the country.

Matthias Kamp, the China correspondent with Swiss daily “Neue Zürcher Zeitung,” wrote that most of the laws enacted by Beijing are very vague, which gives the authorities maximum flexibility in enforcing them. And for foreign companies in China, the revised anti-espionage law may also have serious consequences.

“Even ordinary market research or collecting information on competitors may fall into the scope of the anti-espionage law in the future. The atmosphere of anxiety has spread among enterprises. The heads of enterprises in China are worried that the company may be searched, and computers and mobile phones may be confiscated,” Kamp wrote.

Chinese paramilitary police officers secure an area at Daxing international airport in Beijing on Feb. 14, 2020. (Nicolas Asfouri/AFP via Getty Images)

Arbitrary Charges

Even before the new laws, foreign firms have been targeted by the CCP.

A recent victim was Bain & Co, a U.S. global management consulting firm. In April, the firm’s Shanghai office was raided, and its staff interrogated, a spokesperson confirmed with The Epoch Times on April 27.

The Chinese authorities reportedly confiscated the company staff’s computers and phones, while the raid’s purpose remains unclear.

The incident came after U.S. due diligence firm Mintz Group’s office in Beijing was raided by Chinese police in March. Authorities detained five Chinese nationals working for the company. Mintz is a major legal firm involved in corporate analysis, due diligence, and corruption investigations.

The New York-based firm told Reuters on March 24 that it “has not received any official legal notice regarding a case against the company and has requested that the authorities release its employees.”

Days later, Mao Ning, spokesperson of China’s Foreign Ministry, told reporters that Mintz Group “is suspected of illegal business operations.”

In the same month, the Chinese authorities announced a cybersecurity audit of Micron Technology, a U.S. computer memory manufacturer. According to the Chinese Ministry of Foreign Affairs, cybersecurity audits of network products that affect or may affect national security are standard regulatory measures taken to safeguard national security.

However, the move is widely perceived as Beijing’s retaliatory tactic against Washington amid intensified U.S.-China rivalry.

The CCP is not only cracking down on U.S. companies in China.

In March, the Chinese authorities announced the detention of an executive of Japanese pharmaceutical company Astellas Pharma Inc. on suspicion of espionage. The arrest sent shockwaves through the Japanese business community in China and prompted a strong reaction from Tokyo, where the Japanese government demanded the drug company’s executive be released.

Since 2015, at least 17 Japanese nationals have been detained by the CCP on similar charges.

Trust Issues 

Since lifting the country’s draconian COVID-19 measures, senior Chinese officials have frequently expressed a strong desire to bolster business confidence and encourage investment and growth.

Speaking at the annual meeting of the China Development Forum on March 26, Vice Premier Ding Xuexiang pledged to continue to expand market access, optimize the business environment across the board, and implement national treatment for foreign-invested enterprises, among other things.

(L-R) Yu Bin, Vice President Development Research Center of the State Council, Han Wenxiu, Executive Deputy Director of the General Office of the Central Financial, Ray Dalio, founder of Bridgewater Associates LP, during China Development Forum 2023 at Diaoyutai State Guesthouse on March 25, 2023, in Beijing, China. (Lintao Zhang/Getty Images)

Fang Qi, a U.K.-based senior financial consultant, told The Epoch Times on May 7 that Beijing’s heightened use of exit bans appears to go against its professed desire to bolster business confidence and foreign investment in the country.

“The Chinese Communist Party is often contradictory in its actions. It would usually say one thing but do another. In this case, it needs foreign companies’ capital, but on the other hand, it does not trust them. This is why there are essentially no new foreign companies entering China," Fang said.

“As geopolitical conflicts intensify and foreign companies’ profits in China plummet, [companies] are reluctant to choose China as a place to invest or operate. It wouldn’t make sense either from a business point of view or from a risk point of view.”

He added that even for foreign companies already in China, many would be forced to de-couple, some manufacturing industries would move their supply chains out of China, and only companies with a certain scale of operation in China may stay as they have invested too much.

Dorothy Li and Ellen Wan contributed to this report.