As the Chinese Communist Party (CCP) pursues a domestic anti-spy campaign and new espionage laws, PRC national security concerns and greater suspicion of foreigners may trump foreign business complaints about unfavorable treatment, rising trade barriers, and feeling unwelcomed. Foreign firms in China should not ignore these warning signs, but instead plan for a period of higher business risk and harsher conditions, especially since strong historical parallels indicate that this period may not pass quickly.
New Anti-Spy Laws and Regulations Reflect Real Problems
Since CCP General Secretary Xi Jinping convened the first meeting of the Central State Security Commission in 2014, a spate of new security measures has emerged including the National Security Law, the Counterterrorism Law, the Intelligence Law, the Cyber Security Law, the Counterespionage Law, as well as additional regulations meant to guide implementation (en.people.cn, May 18, 2017; China Brief, May 11, 2016; cpcnews.cn, April 15, 2014).
The party pursued these measures for clear reasons, including real espionage problems uncovered by Chinese counterintelligence. Notable among them was a multi-year roundup, ending in 2012, of over 20 PRC citizens spying for the United States, and more than 40 cases reported two years later against Chinese citizens accused of spying for Taiwan (Sina.com, October 27, 2014; New York Times, May 20, 2017).
Guided by these new laws and regulations, a media campaign emerged over two years ago that continues into the present. The first annual National Security Day inaugurated on April 15, 2016, promoted popular awareness of foreign espionage after PRC authorities unveiled their report-a-spy hotline, 12339, in late 2015. Numerous media pieces followed, including television news segments on foreign spying, and propaganda videos tailored to audiences from primary school students to young adults (Chinanews.com, April 20, 2016; bjnews.com.cn, April 10, 2017; South China Morning Post, November 6, 2017). Echoing the reality of an escalating espionage competition between Washington and Beijing, the Chinese campaign more than matched efforts by American authorities to warn of Chinese espionage in the U.S. (FBI videos Game of Pawns April 2014 and Company Man July 2015).
Echoes of Mao in Xi’s Counterintelligence “Trinity”
The CCP and its compliant media have dubbed the campaign “Trinity” (三位一体, Sanwei yiti), using a well-worn phrase in Chinese to herald a “new era” of security management. True to its name, there are three broad efforts: 1) employ new laws and regulations to integrate national counterintelligence efforts, as noted above, 2) improve communication between Chinese security agencies, civilian and military, and 3) advance a “broad concept of national security” going beyond traditional counterintelligence from earlier, less connected times to better protect China in a time of heightened foreign influence inside the PRC (Xinhuanet.com, July 2, 2015).
The “broad concept of national security” is not just about catching spies, but seeks to better prepare and shape the PRC environment, making it a harder target for foreign influence of all sorts. In part the “broad concept” addresses a problem that began a decade before Xi Jinping’s anti-corruption and anti-spy campaigns, when his predecessors expanded the rolls of the party outside the traditional pool of workers, peasants and soldiers. They sought to attract society’s “advanced productive forces,” in other words, wealthy entrepreneurs and capitalists, under the “Three Represents” (三个代表, Sange daibiao) promoted by Jiang Zemin beginning in 2000. The effort continued under Jiang’s successor, Hu Jintao (en.people.cn, September 29, 2007).  China’s nouveau riche were not the only new party members after 2000, but they became increasingly visible, with yuan-billionaires appearing in the National People’s Congress. 
As the CCP’s membership grew after 2000  and its profile changed to include the moneyed classes, public dissatisfaction over corruption increased, whether or not there was a causal link between affluent communists and graft. To help preserve the party’s legitimacy, Xi Jinping entered office in 2012 determined to attack corruption. After a difficult start, his campaign netted thousands of lower level officials and a number at the top, like Bo Xilai and Zhou Yongkang, who might have resisted Xi’s accrual of authority, the establishment of his “thought” as an unassailable ideological standard, and a widening hunt for enemies within. Perhaps to show precedent for purging corrupt members of the communist elite, party propaganda early in Xi’s campaign reminded us that Mao “selflessly destroyed seven big tigers” in 1932-34 (People.cn, July 31, 2014).
Xi’s ascent to a position of unchallenged leadership within the CCP took place during a very different time than when Mao Zedong took control (1937-45), and Xi does not seem to be pursuing Mao’s permanent revolution or a radical leftist agenda. But some parallels are apparent. The CCP accepted droves of new members who flocked to their Yan’an base area in patriotic fervor after the Japanese invasion began in July 1937. As the Chinese Nationalist Central Government sought to surround Yan’an and pursue a military and espionage offensive, the CCP developed doubts about their new acolytes, pursuing a “cadre checking” hunt for spies and infiltrators among them (1941). The Rectification Campaign (整风运动, Zhengfeng yundong, 1942-1944) followed, promoting ideological unity behind “Mao Zedong Thought,” while Mao finished off his only credible opponent, Wang Ming. In the midst of this, the infamous Salvation (抢救, Qiangjiu) Campaign forced large numbers of people to falsely confess to spying in 1943. Perhaps not by coincidence, Mao was first designated as Chairman of the CCP in March of the year the Salvation Campaign began. (He fully consolidated his grip on the CCP in 1945 at the Seventh Party Congress.) Mao’s partisans in Yan’an during these movements included not only the infamous black sheep of CCP intelligence, Kang Sheng, but also modern-day saints in the communist Chinese pantheon: Xi Zhongxun (Xi Jinping’s father), Liu Shaoqi, and Chen Yun. 
A decade later, during Mao’s early rule of the People’s Republic, the party conducted another major drive to eliminate enemies and silence critics. In 1955, the CCP targeted five percent of officials nationwide, claiming that they were hidden counterrevolutionaries—that is, people resisting the Chinese Communists in the name of the U.S. or the Guomindang (Nationalist) ancien régime exiled on Taiwan. Though far less than five percent of officials were actually purged, the campaigns led to the imprisonment in labor camps of over 1.3 million people that year.  By coincidence, the CCP Central Discipline Inspection Commission, which leads purge activity under Xi Jinping, announced late last year that 1.34 million officials have been punished for graft since 2013 (Reuters, October 7, 2017).
The Six Percent Illusion
But what about the spies? A notably fantastic claim arose in 2016 that continues to circulate online in China, undeleted and uncensored: 115,675 people in the PRC are engaged in foreign espionage, including 48,564 foreigners and 67,111 Chinese nationals. The largest spy teams are said to work for Germany, Japan, the United States, France, and South Korea. The first Chinese reports with these numbers were originally attributed to Agence France Press, but the French connection was omitted from most subsequent postings and internet searches produce no such AFP report (Sohu.com, May 3, 2016 and September 15, 2016; 360doc.com, Dec 1, 2016; jmqmil.sina.cn, March 10).
Though estimates of the foreign population living in China published in English tend toward 600,000, those published in Chinese are closer to 800,000 (People.cn, January 14, 2016). For those who accept the idea that there are over 48,000 foreign spies in the country, the math indicates that six percent of foreign residents in the PRC are active in espionage—again reminiscent of Mao’s time, when the party center targeted five percent of officials as counterrevolutionaries.
Avoiding Irrational Exuberance
Some foreign business observers believe that the today’s new security laws and the anti-spy campaign merely codify past practices—the PRC putting down on paper what they have always done to spy on foreigners and control business activities.  One could see efforts like the “Dangerous Love” propaganda cartoon as mildly ridiculous, and view as an illogical “one-off” the 2014-16 detention of Canadian missionaries Kevin and Julia Garratt, who ran a coffee shop in Dandong, a city on the North Korean border. Official Chinese pronouncements in English reassure foreigners that they will not be affected by stricter VPN controls (Shanghai Daily, January 31, 2018) in response to reports that some foreign companies are facing problems with connectivity while others do not (RFA.org, January 16). There is an element of truth to this optimism, but it too quickly dismisses the possibility that the CCP could be embarking on yet another historic anti-spy catharsis under a great leader consciously modeling himself after Mao, a man who worried about erosion of his party’s missionary fervor, eventually became unconcerned by the need to build consensus among equals, and reacted harshly to even the slightest opposition.
This is not solid proof of danger that should prompt an exit from the Chinese market, but it does indicate heightened risk to foreigners on Chinese soil, especially if their home nation comes into conflict with Beijing. It could also warn against overvaluing the prospects for doing business in the PRC as we approach the 2020s.
Foreign companies in China should reexamine their typically optimistic assumptions and plan for the possibility that a strategic inflection point has arrived in China, with more strident host government interference with operations, including seizures of shipments and property, far-fetched allegations about ordinary matters, intensified surveillance leading to IP theft or worse, and the detention of employees. In short, to sustain business and avoid pitfalls that endanger people and assets, it’s time to develop a Plan B.
Matthew Brazil, Ph.D. is a non-resident Fellow at The Jamestown Foundation. He worked in Asia for over 20 years as an Army officer, American diplomat, and corporate security manager. Matt runs Madeira Security Consulting Inc. in San Jose, California, specializing in advice to Silicon Valley companies doing business in China. With Peter Mattis, he is the co-author of a work on Chinese intelligence operations to be published in spring 2019 by the Naval Institute Press.
 Orville Schell and John Delury, Wealth and Power: China’s Long March to the Twenty-First Century (New York: Random House, 2014) p. 348. David Shambaugh, “China at the Crossroads: Ten Major Reform Challenges.” The Brookings Institution, Washington, DC, October 1, 2014, p. 6. Joseph Fewsmith, “Studying the Three Represents,” in China Leadership Monitor, No. 8, Fall 2003, pp. 2-3.
 Tony Saich, “The National People’s Congress: Functions and Membership.” The Ash Center, Harvard Kennedy School, November 2015, p. 9. https://ash.harvard.edu/files/ash/files/the_national_peoples_congress.pdf
 From 64.5 million members in 2000, when Three Represents was first announced, CCP membership grew to 75.9 million in 2008 and 85.1 million in 2012, when Xi Jinping took the reins as General Secretary. Sina.com, June 30, 2015.
 Hao Zaijin, Zhongguo mimi zhan – Zhonggong qingbao, baowei gongzuo jishi [China’s Secret War – The Record of Chinese Communist Intelligence and Protection Work] (Beijing: Zuojia chubanshe, 2005), pp. 249-50. Gao Hua, Hong taiyang shi zeyang shengqi de [How did the Red Sun Rise Over Yan’an: A History of the Rectification Movement] (Hong Kong: Chinese University Press, 2000), pp. 461-62. Michael Dutton, Policing Chinese Politics (Durham and London: Duke University Press, 2005), pp. 106-108. Peter J. Seybolt, “Terror and Conformity, Counterespionage Campaigns, Rectifications, and Mass Movements, 1942-1944” in Modern China, Vol. 12, No. 1 (Jan. 1986), pp. 56-57.
 Gu Chunwang, Jianguo yilai Gong’an Gongzuo Dashi Yaolan [Major Highlights in Police Work Since the Founding of the Nation] (Beijing: Qunzhong Chubanshe, 2003) p. 89, entry for August 25, 1955. Andrew Walder, China Under Mao, A Revolution Derailed (Cambridge, Massachusetts: Harvard University Press, 2015), p. 66.
 Author’s interviews with foreign business executives in China, December 2017 – January 2018.
 The cartoon “Dangerous Love” (危险的爱情, Weixian de aiqing) appeared in China during April 2016. Displayed in public using large posters, it depicted a female Chinese state employee being seduced by a red-haired Westerner with a prominent nose, who convinced her to hand over classified materials. (New York Times, April 21, 2016).