Canadians in China shrug off diplomatic spat, but fear worsening business environment

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For foreigners doing business in China, this has been a tense few weeks. First, Beijing introduced a sweeping new anti-espionage law which will make it easier to arrest foreign nationals; then, police across the country launched a series of high profile raids of consultancies and due diligence firms, detaining multiple executives.

Canadians would be forgiven for feeling particularly uncomfortable, as relations between Beijing and Ottawa plunged to new depths amid a tit-for-tat expulsion of diplomats and threats of further retaliation. While China’s response has so far been relatively measured, many are holding their breath to see if Canada is hit with trade restrictions, as it has been in the past. There are also further hurdles ahead in the relationship, most notably a push for a Canadian foreign agent registry – the creation of which in Australia in 2018 caused a rift between Canberra and Beijing that is only beginning to heal.

“There is a precedent for these things getting worse before they get better,” said Noah Fraser, managing director for China at the Canada China Business Council. “Our members are watching the diplomatic spat very closely because we have scars that are slow to heal.”

Chief among those scars is the over-1,000-day detention of Canadians Michael Kovrig and Michael Spavor, who were jailed in retaliation for the arrest of Huawei executive Meng Wanzhou in Vancouver. All three were finally released in September 2021, after Ms. Meng reached a deal with U.S. prosecutors, who had been seeking her extradition on fraud charges.

The Two Michaels saga shocked and alarmed many foreigners living in China, and their detention was widely criticized for its political and arbitrary nature. But most Canadian expats who spoke to The Globe and Mail this week said they were unconcerned by the latest diplomatic spat, which feels less connected to them and isn’t translating into any hostility or difficulty on the ground.

“This seems like nothing compared to the Two Michaels,” said Trevor Metz, a small business owner in Beijing who has lived in the country since 2005. He said Chinese friends and customers would bring up the detention of Ms. Meng, whereas now, no one is mentioning the diplomatic spat. “Even other Canadians don’t seem concerned.”

Ember Swift, a musician and artist living in Beijing, said “there are always issues between every government.” She criticized the media for overplaying tensions and not focusing on “what’s going right, all the great relationships we have with this country.”

“These days it’s true there’s some political tension, but there’s no personal tension,” Ms. Swift said, adding Chinese people she meets usually have a very positive view of Canada.

Multiple interviewees spoke of a hollowing out of the Canadian expat community in recent years, primarily due to the COVID-19 pandemic and related lockdowns, but also because of hardening attitudes toward China back home and the growing difficulty of doing business in the country.

That has been exemplified by crackdowns this month on foreign companies providing market intelligence. On Sunday, Chinese state TV broadcast footage from raids on the offices of Capvision, a New York-headquartered research company that is accused of paying Chinese experts to provide state secrets. Earlier sweeps targeted consulting business Bain & Co. and Mintz Group, a due diligence outfit.

“This crackdown is not an isolated incident, but rather part of a broader effort by the Chinese government to regulate certain sectors that are increasingly seen as posing national security risks,” Joshua Huang, a lawyer who specializes in white collar crime, wrote in the Chinese business publication Caixin this week.

Mr. Fraser said there was concern about the vague language of the anti-espionage law. “Business thrives on clarity and these laws are written in a very unclear way,” he added. “And it makes you wonder who else may get caught in the net, foreign NGOs, chambers of commerce, political and economic analysis companies.”

He questioned how China can expect to attract greater foreign direct investment – as Beijing claims to want to do, following a pandemic slump – while making it harder for people to know what they’re buying into, especially when governments back home are increasingly scrutinizing such investments.

“It’s a rock and a hard place for companies in many ways,” he said. “All of these factors contribute to a reduced level of investor confidence in what was already a quite battered environment.”

That being said, Mr. Fraser said most Canadian investors “are here to stay, there’s not any queue for mass disinvestment, but there’s also no big desire for new investment.”

While it’s unlikely any Canadians would be targeted as a result of worsening relations between Beijing and Ottawa – part of the reason the Two Michaels attracted international attention was their case was so exceptional – any downturn in ties will make it harder for Canada to protect or lobby on behalf of citizens caught up in China’s often arbitrary legal system.

Over a hundred Canadians are imprisoned in China, with at least four facing the death penalty. These include prisoners of conscience, including Falun Gong practitioners, people detained on drug charges or allegations of fraud, and those who, like the employees of due diligence companies arrested this month, may have found themselves on the wrong side of a rapidly shifting regulatory environment.

That was what happened to Li Yonghui, a Chinese-Canadian billionaire once lauded in state media, whose P2P lending firm Fincera was targeted in 2019 amid a broader crackdown on the sector reminiscent of the raids this month. Mr. Li and over a dozen other executives arrested at the time still have yet to go to trial.

In an editorial this week, the Chinese state-run Global Times criticized Western media reports on the anti-espionage law and recent crackdowns as “trying to stir up an abnormal ‘sense of insecurity’ toward the Chinese market among foreign enterprises and wantonly discrediting China’s investment environment.”