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China tech: Buyer beware

Lachlan Maddock
— 1 minute read

Chinese tech opportunities are on the rise and more attractive than ever, but come with severe reputational risks.

As China looks to rebuild its economy in the wake of COVID-19, it’s likely to turn to its home-grown tech scene under President Xi Jinping’s “Made in China 2025 scheme”, which aims to turn China into the world’s largest high-quality goods manufacturer by 2050. That’s likely to create a number of lucrative opportunities for overseas investors – but buyer beware. 

“The US blacklisting of several Chinese tech companies – including HikVision, SenseTime and Megvii – due to their links to human rights abuses in Xinjiang illustrates the reputational risks for institutional investors,”  said Maplecroft human rights analyst Sofia Nazalya. “Crucially, current and emerging legislation that delists or places sanctions or bans on corporates with links to human rights abuses outlines how risky it is to get into bed with tech companies that have become entangled with state surveillance.”

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Foreign companies in China are also forced to operate in an environment “with little respect for privacy and transparency”, with the state actively collecting citizen’s data through the implementation of its controversial Social Credit System (SCS). 

“With the threat of the virus resurfacing, companies are at risk of being penalised under the SCS if they do not implement social distancing measures in the workplace,” Ms Nazalya said. “Similarly, if employees are found to be endangering public safety, for example by flouting ongoing travel restrictions or hiding their medical history, they will be at risk of having their social credit score docked.

“This has direct repercussions for business, given that employees’ misbehaviour and poor social credit record would in turn reduce the corporate credit score of their employers.”

China has significantly increased its surveillance efforts for the nominal purpose of combating COVID-19, with CCTV cameras installed outside the homes of those in quarantine and drones that warn citizens to wear masks now the new normal. 

“While China is keen to claim that an all-encompassing approach to surveillance will be necessary to protect public health, the repercussions on both individuals and corporates will be far-reaching,” Ms Nazalya said. “Not only will China’s ‘new normal’ be characterised by further erosion of individual anonymity and privacy, intensified surveillance will see companies under a state-operated microscope unlike anything they have experienced before.”

 

China tech: Buyer beware
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