In China, the Police Came for the Consultants. Now the C.E.O.s Are Alarmed.

The China Development Forum, a high-profile, government-hosted convention with a who’s who of worldwide executives in attendance, was a second for Beijing to resume its efforts to win over overseas companies.

Businesses from outdoors China “are not foreigners, but family,” mentioned Wang Wentao, China’s commerce minister. State media reported that the chief executives of Apple, Pfizer and Procter & Gamble have been on the discussion board, held in late March. Many of the handfuls of enterprise leaders there have been on their first journey to China for the reason that nation had closed its markets to the world and derailed its economic system with harsh Covid insurance policies.

Mr. Wang pledged to take away obstacles stopping companies from investing extra — 2023, he declared, was “Invest in China year.”

The good will didn’t final lengthy.

The latest focusing on of consulting and advisory companies with overseas ties by raids, detainments and arrests has reignited considerations about doing enterprise in China. Executives, whether or not at midsize producers or giant firms, are exploring the right way to scale back the threats to their companies and shield their staff.

Over the previous couple of years, as China has grown much less business-friendly, some firms and traders have been already beginning to take into account, for the primary time in a long time, whether or not the dangers of investing within the nation would possibly outweigh the potential advantages.

The provide chain disruptions wrought by “zero-Covid” woke up firms to the draw back of reliance on China. The geopolitical standoff between Washington and Beijing elevated the danger, forcing many multinationals to draft contingency plans for an alternative choice to China and to seek out methods to “decouple.”

And as Xi Jinping, China’s prime chief, calls for that Beijing bolster its nationwide safety and restrict info to overseas governments and corporations, some companies are taking motion.

Dan Harris, a Seattle lawyer who works with overseas firms in China, mentioned he has heard from an unusually giant variety of companies in latest weeks searching for methods to scale back their presence in China with out leaving the market altogether.

One of his purchasers, a U.S. furnishings producer, is engaged on a deal to distribute its merchandise by a Chinese agency so it might take away its American staff from the nation. A U.S. schooling firm, additionally a consumer, is shutting its China items and licensing its expertise to its present Chinese staff. He declined to supply extra element, as a result of he advises purchasers to not focus on leaving China till they’re gone.

“The government in China is accelerating decoupling rather than trying to slow down,” mentioned Andrew Collier, managing director at Orient Capital, an financial analysis agency primarily based in Hong Kong. “If corporations feel that their operations are constantly open to incursion, they’re not going to be comfortable operating within that environment.”

Reports of raids or official safety visits at outstanding consulting companies in the previous couple of months, together with American outfits such because the Mintz Group and Bain & Company and most just lately Capvision Partners, a consulting firm with headquarters in New York and Shanghai, have raised alarm. Such companies assist overseas companies assess investments earlier than they sink cash into an organization. They play a very essential function in China, the place dependable info is difficult to safe and might include a premium. Capvision disclosed in a regulatory submitting two years in the past that the majority of its knowledgeable researchers have been paid about $200 per hour, with some making as a lot as $10,000 an hour.

Revisions accredited final month to China’s counterespionage legislation deepened the uneasiness as a result of they formally broadened the legislation’s already sweeping definition of what constitutes spying. Employees at overseas firms in China could possibly be focused as spies for regular enterprise practices corresponding to gathering info on opponents, markets and business.

At a convention on China hosted by the U.S. Chamber of Commerce in Washington on Wednesday, Suzanne Clarke, the chamber’s chief govt, mentioned the brand new counterespionage legislation and crackdown on consulting companies “have ratcheted up risk and uncertainty in the market.”

At a gathering of finance ministers of the Group of seven in Niigata, Japan on Thursday, Treasury Secretary Janet L. Yellen mentioned many G7 members have been additionally involved by China’s actions and “looking to see what we could jointly do to try to counter this kind of behavior.”

Liu Pengyu, a spokesman on the Chinese embassy in Washington, mentioned that China welcomed overseas firms. “China is a law-based country,” he mentioned. “All companies in China must operate in accordance with the law.”

China has all the time been dangerous for overseas companies. During its rise to changing into the world’s second-largest economic system, firms disregarded many purple flags. But now, with progress stagnating and dangers multiplying, the calculation is completely different.

Deal making in China has slowed. U.S. firms introduced 25 enterprise offers in China in 2022, down from 56 the earlier yr, in line with the info service agency Dealogic.

Advisers to companies trying to make investments say that new areas of focus embody Japan, South Korea and Singapore. Last yr, U.S. deal makers introduced 28 offers in Singapore, 24 in Japan and 21 in South Korea — all about the identical or barely greater than the yr earlier than.

At the chamber’s occasion this week, Heather Clark, a lobbyist with the drugmaker Eli Lilly, which first opened an workplace in Shanghai in 1918 and once more in 1993, mentioned cash flowing out of China underscored the necessity to search nations which can be extra pro-business.

“Every company in this room is re-evaluating their China strategies,” mentioned Ms. Clark throughout a panel dialogue with the 2 leaders of the House Select Committee on China, which has been holding hearings on China’s financial and safety menace to the United States and can make suggestions to Congress.

“So where is that investment going to go in the future? It’s going to come back to the United States, and it’s going to go to other friendly countries,” she mentioned.

While firms and traders might imagine deeply about placing new cash into China, a divorce from China is unlikely — at the least within the quick time period.

For producers, no different nation can problem China’s infrastructure and the dimensions of its expert work power. Companies with merchandise to promote are reluctant to stroll away from a market with 1.4 billion potential shoppers.

James McGregor, the chairman for Greater China for the advisory agency APCO Worldwide, mentioned the system for U.S. companies stays “you can’t not be there.”

An govt with operations in China mentioned many C.E.O.s of consumer firms are actually asking if their items will be made elsewhere — however it’s usually the identical firms’ operations or engineering employees who insist it’s inconceivable to attain the required high quality elsewhere. The govt requested to not be recognized as a result of there may be a lot sensitivity round China.

“Nobody that I know of is actually leaving China,” mentioned Michael McAdoo, a accomplice within the international commerce group at Boston Consulting Group. “They’re just maybe looking at other places where they can balance that investment they’ve made historically there.”

By extending new safety measures all through the economic system, China is amplifying what was already one of many greatest dangers of investing in China: lack of transparency.

“It’s going to backfire,” mentioned Mr. Collier of Orient Capital, who has accomplished due diligence work in China. “Anybody who wants to build a $50 million plant is not going to be comfortable doing it because they won’t be able to do any investigation of the location, the land involved, the partners or anything.”

Victoria Kim and Claire Fu contributed reporting from Seoul.