* CICC Capital ban on Capvision effective immediately -memo
* Previous dealings with Capvision to be reviewed -memo
* Companies tread cautiously as raid rattles business
community
HONG KONG, May 10 (Reuters) – CICC Capital, a unit of
leading Chinese investment bank CICC, has stopped
using Capvision Partners’ services, three sources said,
following an investigation into the “expert network” as part of
Beijing’s crackdown on national security.
Shanghai-based Capvision is the latest consultancy and due
diligence firm to get caught in Beijing’s sweeping crackdown on
what state media describes as “intensifying” law enforcement
push around sensitive corporate information.
In an internal memo issued on Tuesday, which was confirmed
by sources with direct knowledge, CICC Capital’s research
division said it would ban all its teams from using Capvision
for due diligence-related expert calls and inquiries.
The move by the flagship alternative investment arm of
state-owned behemoth China International Capital Corp (CICC)
comes with financial sector participants eager to understand if
Beijing would expand its scrutiny into consultancies and their
clients.
Those concerns have been partially fuelled by Chinese
lawmakers passing a sweeping update to anti-espionage
legislation last month, banning the transfer of any information
related to national security and broadening the definition of
spying.
CICC Capital’s ban on Capvision will come into immediate
effect, the memo said, adding its teams should also review
previous dealings with Capvision. Its parent CICC was one of the
underwriters for Capvision’s aborted Hong Kong IPO last year.
CICC Capital’s investment teams have also been barred
from using Capvision for such expert calls or inquiries, said
the sources, who declined to be identified as they were not
authorised to speak to the media.
CICC Capital can still use other consulting firms for such
practices, said two of the sources.
CICC, which handles media queries for the investment unit,
declined to comment. Capvision did not respond to Reuters
request for comment.
CICC Capital manages private equity funds and fund of
funds and had 360 billion yuan ($52 billion) of assets under
management as of the end-2022, according to the parent’s website
and 2022 annual report.
BEEFED UP SECURITY LAWS
Chinese police raided Capvision offices over what state
media this week reported were national security issues.
Capvision, which runs China’s largest expert network group
and has offices in eight cities around the world, was singled
out in a series of news reports including a 15 minute segment by
state broadcaster CCTV on Monday.
The CCTV report said Capvision had accepted projects from
overseas companies to source information, including “state
secrets and intelligence” on sensitive sectors including defence
and advanced technology.
The crackdown on Capvision comes on the heels of a raid on
the Beijing office of U.S. corporate due diligence firm Mintz
and ahead of changes to China’s anti-espionage law from July 1
that could ensnare more companies.
Due diligence is essential for companies doing business in
China, especially after a three-year lockdown under COVID
restrictions and a series of U.S. sanctions on Chinese firms and
individuals that have unnerved investors.
In a country where many firms use subcontractors for due
diligence, the investigations in China have sent a chill across
the business community, with some saying it’s unclear where red
lines stand, forcing them to rethink how they work.
“I think it’s put a pause on using subcontractors as well as
doing it yourself because they’re afraid they’re going to stick
a finger in the wrong eye,” said a person who works in due
diligence with knowledge of the industry in China.
A source at an Asian fund in Hong Kong said it had put the
brakes on all dealings with Capvision after the CCTV report and
told staff who ever used the company’s services to go through
their records and “clean things up as much as possible”.
Another source at a Hong Kong-based hedge fund said
their compliance team had ordered them to temporarily cease
dealings with Capvision after the CCTV report.
Capvision said after the report it would resolutely abide by
China’s national security rules and take the lead in ensuring
the consulting industry was compliant.
China says it welcomes foreign investment as long as firms
abide by its laws.
“Obviously it’s the clearest signal yet that the crackdown
is targeting the broader industry,” a source at a risk
consulting firm in Shanghai told Reuters.
“(We) may start to review our operations to make sure we are
compliant with the government’s latest messaging,” said the
source, who declined to be identified due to the sensitivity of
the matter.
Some clients are standing by Capvision.
A China-based fund manager at a leading Chinese asset
management company, who also declined to be named as he was not
authorised to speak to the media, said he had not been asked by
his firm to stop using Capvision services.
“I’m not too worried about it, we’ll continue to use them,
because we’re not asking for anything sensitive connected to the
military or government or anything.”
($1 = 6.9121 Chinese yuan renminbi)
(Reporting by Julie Zhu and Shanghai newsroom, additional
reporting by Xie Yu, Summer Zhen and Anne Marie Roantree in Hong
Kong, Laurie Chen in Beijing and Engen Tham in Shanghai; Editing
by Sumeet Chatterjee and Lincoln Feast)
