Business executives in China face a “aggressive” crackdown if they are detained, absent, or under investigation.

As China’s leader Xi Jinping tightens regulations on businesses and consolidates his hold on the country’s economy, business executives there are facing tremendous pressure.

Over a dozen high-ranking executives from industries including as technology, finance, and real estate have disappeared this year, been placed under arrest, or been the focus of corruption investigations.

The sweeping has also ensnared foreign consulting businesses. In the second-biggest economy in the world, they are facing increasing risks, including as the potential for worker detentions and police raids.

Despite economic challenges, China’s ongoing crackdown on various sectors, driven by the Communist Party’s desire for control and national security concerns, continues to unsettle executives and foreign investors. While Beijing has tried to reassure entrepreneurs and investors about China’s openness for business, the consistent investigations and detentions are creating unease. According to Doug Guthrie, a professor and director of China Initiatives at Arizona State University’s Thunderbird School of Global Management, China has entered a new phase of regulatory control over the private sector and foreign investors in the past decade.

“The message was clear: If you are a Chinese company, you will work with the Chinese government first and foremost; and if you do not, you will suffer significant consequences,” Guthrie continued. “It doesn’t matter how successful your business is globally.”

A sudden disappearance

This past week, the state-run media outlet Cover News revealed that the CEO and creator of Tencent-backed DouYu, a Chinese live-streaming platform, had disappeared from contact in recent days, citing unverified rumors that he was under investigation.

Which authorities were conducting the potential inquiry was not said.

The Paper, another state-run publication, revealed that Chen had vanished from sight in October.

CNN was informed by a DouYu representative that the company’s “business operations remain normal” and that it would promptly disclose “any significant news or material activities.”

According to a report, Chen vanished five months after the Chinese Cyberspace Administration conducted an on-site examination of Douyu to look into what it deemed to be “serious” issues with the platform, including purported pornography and “vulgar” content.

Recently, Zhao Bingxian, a businessman known as “China’s Warren Buffett” for his profitable investments, was detained by authorities. His company, Wohua Pharmaceutical, stated that Zhao was assisting supervisory and anti-corruption agencies in investigations unrelated to the company. Zhao, who is the chairman of Wohua Pharmaceutical and several other listed companies, has invested in various Chinese firms since 2000 and brought their shares to public markets in mainland China and Hong Kong. Despite signals of winding down campaigns against tech and financial companies, experts like Doug Guthrie believe that aggressive corporate governance will persist as Beijing uses selective cases to signal its intolerance for behaviors and practices that don’t align with government goals.

High-ranking corporate executives have also been under investigation.

The National Supervisory Commission and the Central Commission for Discipline Inspection (CCDI) announced in a brief statement on Wednesday that Zhou Zheng, the former deputy general manager of COFCO Group, the biggest state-owned food manufacturer and processor in China, was the subject of an investigation.

Without providing more information, the two anti-corruption watchdogs stated that Zhou was “suspected of seriously violating rules and laws.”

According to the CCDI, Zhou’s inquiry comes after one that looked similarly at Zhang Hongli, a former top officer of the Industrial and Commercial Bank of China, one of China’s “Big Four” lenders.

Star tech dealmaker and investment banker Bao Fan was also swept up in the sweep. Chinese official media said in May that since his disappearance in February, Bao had been under the anti-graft agency’s custody.

Based on prior CNN analysis of comments from the CCDI website, the commission has looked into over a dozen senior executives at the nation’s major financial institutions so far this year.

No end in sight

This year, there has been a heightened sense of unease within China’s business community, a feeling that’s not entirely new. In 2020, President Xi Jinping initiated a major regulatory crackdown on the private sector, erasing trillions of dollars in market value from Chinese companies globally. This follows a concerning trend from five years prior, where numerous top executives mysteriously disappeared.

The dampening of business morale is evident in recent statistics. Official figures reveal that in the first nine months of the year, private sector investment declined by 0.6%, contrasting sharply with a 7.2% increase in state sector investment.

Moreover, in the third quarter, foreign direct investment in China turned negative for the first time since 1998, highlighting a significant capital exodus.

In response, the Beijing government has implemented various strategies to rebuild trust, including a comprehensive 31-point plan unveiled in July to enhance the business climate. However, experts are skeptical about these measures’ efficacy in reversing the already inflicted damage.

The recent incidents involving executives who have either disappeared or been detained are unlikely to improve investor confidence.

Guthrie notes that foreign companies, especially those seeking access to China’s extensive consumer markets in tightly controlled sectors like technology, finance, and education, may be deterred by these developments.

According to Mauro Guillen, a professor at the Wharton School of the University of Pennsylvania specializing in multinational management, these events are likely to further dampen the investment climate in China.

He points out that global investors are already cautious due to escalating tensions between China and Western countries, coupled with China’s slow economic growth and substantial corporate debt.

Guillen criticizes President Xi’s approach, arguing that he is giving priority to geopolitical ambitions over economic stability, seemingly unaware that a robust economy is essential for global influence. He suggests that Xi should concentrate on fostering economic growth for a few more decades.