China Criminalizes Info Collection In Glaxo Case
OPINION
On Friday, the Shanghai No. 1 Intermediate People’s Court tried Briton Peter Humphrey and his American wife, Yu Yingzeng, and found both of them guilty of “illegally obtaining private information.” At 11:00 P.M. Humphrey received a two-and-a-half-year sentence and a fine of 200,000 yuan, about $32,500. Five minutes later, Yu learned she would spend two years in prison and pay 150,000 yuan. He will be deported at the end of his term. She will not.
Even by the standards of Chinese criminal justice, the one-day disposition of the case, from opening statement to sentencing, was unusually swift. Perhaps that was to make up for the lengthy pre-trial incarceration. The pair, well-known in the foreign business community in China, was taken into custody last July amid the GlaxoSmithKline sex, lies, and videotape furor.
Glaxo had retained the couple’s firm, ChinaWhys, to look into the origins of a secretly filmed sex tape showing Mark Reilly, then head of the pharmaceutical firm’s China business, and his Chinese girlfriend. Someone had e-mailed the video and allegations of systematic wrongdoing to Glaxo’s chief executive and the company’s board members in London. Apparently, similar e-mails were sent to Chinese officials. Humphrey and Yu were detained the same month authorities publicly alleged that Glaxo had engaged in massive bribery. Reilly, who returned to China to help in the investigation, was charged this May and is now prohibited from leaving the country.
Why are Humphrey, 58, and Yu, 60, now in the slammer? During the course of the trial, Humphrey testified that about half of the 700 or so due diligence reports he and his wife produced from 2004 to 2013 contained personal information. In 2009, amendments to China’s criminal law generally outlawed the trading in such material. As a technical matter, prosecutors on Friday did not allege that their work for Glaxo involved the obtaining of personal data, the charge on which they were both convicted.
Everyone, however, links the Humphrey-Yu case to Glaxo. In the course of their work for the company the husband and wife investigated Vivian Shi, head of government affairs in China for Glaxo until she was fired in 2012 for submitting false expense reports. Shi, who denied the accusation, was the wrong person to cross. She is the daughter of a Shanghai government official and is known to be well connected in the city. The criminal prosecution against the ChinaWhys principals, many suspect, is payback.
Whether or not those suspicions are correct, the case is a reminder that, despite more than three decades of economic reform and progress, foreigners remain very much at risk in the People’s Republic. Chinese leader Xi Jinping has presided over a period during which foreign companies have been under increasing attack by the central government, especially since July of last year. The essential problem up to now has been highly discriminatory enforcement of the law. As Time asked at the end of last month, “Is no famous foreign brand safe in China?”
The answer, as we now know, is no. Xi has essentially declared open season on outsiders, and there will be no early end to what is certainly an orchestrated campaign against them.
Unfortunately, the Humphrey-Yu case, which is shaking the foreign community in China, adds a critical obstacle for business there. The ChinaWhys firm had a multitude of multinational clients, and now China has criminalized its business. The official Xinhua News Agency reports that this is the first prosecution of foreigners for illegal investigation.
The case against the couple is an intensification of Beijing’s effort to undermine foreign competitors. “The verdict is the latest in a string of signals from Chinese authorities that suggest an increasing desire to control access to information, often in ways that limit the scope for foreign businesses to use it,” noted the Wall Street Journal on Friday, after the announcement of the two convictions.
Another of those signals, according to the paper, is the central government’s persistent efforts to classify accounting data as “state secrets,” even data of companies listed abroad. Similarly, Beijing has been doing its best to make sure that foreign auditors no longer work in China for such companies.
Virtually all information gathering in the People’s Republic is now potentially illegal. If the material is not considered “personal,” it can be labeled a “state secret.” At this moment, Xue Feng, a naturalized American citizen, is in a Chinese jail, halfway through an eight-year sentence handed down in July 2010, convicted for purchasing a commercial database of the oil wells of state enterprise China National Petroleum Corp. Three Chinese colleagues of Xue’s were also sentenced at the time.
Modern economies run on information. The conviction of Mr. Humphrey and Ms. Yu—and the torture and incarceration of Mr. Xue—means that China is condemning itself to a backwater of the global economy.
China flourished when it opened up its economy after the isolationism of the Maoist decades. Now, however, Xi Jinping is reversing course. He often talks about reform but is in fact sponsoring regressive economic moves. Perhaps it is too early to say he has abandoned Deng Xiaoping’s transformational policies—encapsulated by the phrase “reform and opening up”—but he is cutting China off from the rest of the world.
No country today can prosper for long by retreating from an increasingly globalized economy. Not surprisingly, foreigners are cooling on China recently. In the first half of this year, foreign direct investment increased only 2.2%. It will fall as multinationals begin to think through the meaning of Beijing’s assault on information.
Xi Jinping often adopts Mao’s themes. Foreign analysts try to dismiss his words by saying they are nothing more than political posturing, meant to appease remnant leftists. Now it’s clear they are wrong. Today, Xi is pursuing a Mao-like, isolationist agenda, and if he continues to make China unattractive to international business the consequences will eventually be historic.
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