China’s government has set itself up to infiltrate “Communist Party spies” at Microsoft and other U.S. companies doing business in the country — and expose them to the theft of trade secrets, poaching of employees and even scary intimidation tactics, The Post has learned.
The new version of Beijing’s “Company Law,” which took effect on July 1 — a restriction that experts say has received little coverage in Western media — requires multinational companies with more than 300 employees in the country to appoint an “employee representative” to the board of directors of their China affiliate.
Sources told the Post that the “representatives” are almost certain to be in regular contact with Chinese officials — if not direct members of the Chinese Communist Party. In turn, this would give Beijing direct access to the sensitive inner workings of American firms.
According to US officials, the new rules, which could optionally require that companies adopt local supervisory boards for workers, could also give the CCP sinister tools to exert control over the workforce of US companies.
“They can tell that [Chinese intelligence] One House aide familiar with the law told the Post, “Agents were like, 'This is the person you should be talking to. If you want to compel them, here's who they are.'” “'I have access to employee data. This is their wife. This is where they live. This is where the kid goes to school.'”
Beijing's corporate spies might also try to intrude on confidential meetings or even aid in the theft of intellectual property by asking an employee to insert a flash drive into a particular computer, said a House aide who asked not to be named.
The source said directors spying for the CCP could obtain dangerous information about a company's “pressure points” if authorities wished to exploit them.
The new laws also include stricter “registered capital” requirements for company officers and greater accountability for officers in cases of misconduct or negligence.
According to former Homeland Security Deputy Assistant Secretary Paul Rosenzweig, it is the latest attempt by President Xi Jinping's government to exert greater control over foreign businesses.
“In the past, they've done it in ways that I would call external — that is, the government taking action against a corporation,” Rosenzweig said. “Now they're adding an internal control, an employee representative. If you want to be rude, you could call him a spy for the Communist Party.”
While China's corporate law changes apply to a range of companies, Microsoft has been in the spotlight — not only because it has more than 10,000 employees there, but also because its software is deeply embedded in America's critical infrastructure.
Last year, a China-based group Microsoft email accounts were hacked brazenly Commerce Secretary Gina Raimondo and several other US officials were also present.
Microsoft, which declined to comment for this article, has expanded its operations in China while other big tech firms such as Google and Meta have reduced their presence in the region. The company has tried to downplay security concerns related to China.
In June, when asked by Rep. Carlos Gimenez (R-Florida) if the company complied with a 2017 law that requires companies to cooperate with the CCP’s intelligence services, Microsoft executive Brad Smith said no — and hinted that the company was somehow exempt.
“There are two types of countries in the world. Those that enforce every law and those that make some laws but do not always enforce them. And in this context, China and its laws fall into the second category.” Smith said,
Gimenez didn’t agree with Smith’s explanation — and told the Post he was particularly concerned about China’s revised company law.
“Soon all of these corporations will realize that they will be absorbed into the CCP and China,” Gimenez said. “The sooner they start separating themselves from China, the better, but also the US, the better.”
As The Post reported, US lawmakers warn Microsoft Its cordial relations with China Threat to national security – Especially when the company is working on advanced artificial intelligence.
Microsoft is reportedly considering it Closure of two AI laboratories Because of perceived risks in China – including concerns that China could hack facilities, steal sensitive technology or poach key employees to create its own rival firm.
According to the House aide, corporate law is one way through which China “can put pressure on them to maintain the AI lab.”
“More realistically, they're not going to do that. They're just going to steal all the data, every single bit of data,” the assistant said.
Rep. John Moolenaar (R-Mich.), chairman of the House Select Committee on China, said in a statement that “there is no such thing as a private company in China.”
“I caution all Americans doing business in China — the Chinese Communist Party will accept nothing less than complete control over your spending,” Moolenaar said. “'Labor representatives' are a clear attempt by the CCP to insert party officials into American companies.”
Senator Marsha Blackburn (R-Tennessee) said Congress has “long known that Beijing will steal confidential business information and technology from companies operating in China.”
“Beijing’s latest move, which will likely make CCP officials even more involved in the companies, shows just how far the government’s grip extends,” Blackburn told the Post.
The board representative clause is “definitely another risk factor” for Western firms, according to Jonathan Bench, an expert on Chinese corporate law and a partner at Harris Slivosky.
“I sincerely hope that CCP members will be selected through ‘democratic elections’ in which employees vote,” the bench said. “And where a CCP member is not directly elected, the nominated employee representative will certainly report to one or more CCP cadres either inside or outside the company – or both.”
According to the bench, it is impossible that Microsoft or other companies like it will be able to escape the law.
“I do not see any way to avoid this legal requirement”, the bench said.
Some experts argue that concerns about changes to China's corporate law are exaggerated.
Adam Channer, a lawyer at Kirton McConkie specialising in international investments, said the employee director rule would be a “clumsy tool” to enable CCP surveillance over Western businesses – and added that the law, as written, does not require a director to be a CCP member.
The bigger issue, according to Derek Scissors, chief economist of the China Beige Book, is that American companies like Microsoft have “voluntarily subjected themselves to a completely distorted and discriminatory market.”
“The Companies Act will be interpreted in the manner deemed appropriate by the CCP at the time, so any amendments will not matter,” said Sizers.
