CHANG: Is China Using McKinsey To Spy On America?

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Gordon Chang Contributor
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Critics have accused McKinsey & Company, the global consulting firm, of acting like an arm of China’s Communist Party, working with sanctioned and other dubious Chinese state entities, encouraging American manufacturing to move to China, and ignoring horrific Chinese human rights abuses. Tucker Carlson has taken up the cause.

It’s time to add to this long list of accusations a possible concern: that China is using lucrative consulting arrangements with the firm to obtain information about American businesses and the U.S. intelligence community.

There is no proof Beijing is seeking to use McKinsey for this purpose or that the company is complicit, but the potential for great harm to America nonetheless exists.

And given that potential, it is time for the U.S. government to terminate its consulting arrangements with McKinsey if the consultant does not end its business relationships with Chinese clients.

We start elsewhere, with SpaceX. Elon Musk controls both this Hawthorne, California-based space transportation company and Tesla, the Palo Alto, California headquartered electric car concern. Tesla now operates the Shanghai Gigafactory, which opened last year and accounts for about 30 percent of the company’s manufacturing capacity.

The Washington Examiner reports that Senator Cory Gardner, the Colorado Republican, and Senate staff are considering whether SpaceX’s NASA contracts “represent a potential national security risk due to Chinese financial support for the billionaire owner’s electric car company, Tesla.”

“What is there to stop them from going to Musk directly and saying, ‘We’ll call your line of credit early, unless you give us X, Y, or Z?’” said “a congressional Republican aide involved in negotiations over the comprehensive legislation governing the space agency” to the Examiner, referring to Chinese officials. “And, there’s no real clarity that there’s any kind of mechanism that would stop that other than good behavior by an individual.”

Gardner, who chairs the East Asia subcommittee of the Senate Foreign Relations Committee, has sponsored legislation requiring the Government Accountability Office to review NASA contractors for ties to China and requiring NASA to take into account those ties when awarding contracts.

McKinsey has a SpaceX problem. In fact, the potential for abuse is far greater with the consultant, and the harm could be much more grievous.

Why? The consultant has worked on reorganizations of the CIA, FBI, NSA and DOD, earning almost $1 billion from the Federal government in 10 years. At the same time, McKinsey works for Chinese enterprises.

McKinsey represents or has represented 22 of the 100 largest Chinese state-owned enterprises and nine of the top 20 Belt & Road contractors. That revenue stream gives Beijing influence over McKinsey.

So what does Beijing want? “McKinsey represents a treasure trove of valuable intelligence for the Chinese security services,” Roger Robinson, former chairman of the U.S.-China Economic and Security Review Commission, told me last month. “Such services — and the state controlled enterprises that do their bidding — live to access forensic assessments of the internal operations of key American companies and even government agencies.”

The Chinese know they can change the fortunes of the giant consulting firm, which they can turn on and off like a light switch. The Chinese are into extortion, and all a Chinese client has to do is hint at taking away business from McKinsey or giving it more.

The approach can be subtle. As Robinson told me, “After a big dinner with wine, someone from the Chinese side will say ‘We know you can’t say much, but could you give us some insights?’”

Information flow is from the U.S. partners to the Mainland China and Hong Kong partners, Robert Blohm, a business consultant who worked in China for a decade, told me. Beijing, he says, can count on the Mainlanders and Hong Kongers “to serve the Party.”

In fact, the Mainland McKinsey partners and staff have no choice but to serve. In the Communist Party’s top-down system, obedience to its directives is mandatory. China’s National People’s Congress has even codified this obligation in Articles 7 and 14 of the 2017 National Intelligence Law, which requires every Chinese national to spy for Beijing if the demand is made.

“McKinsey would constitute a priority intelligence target for China,” Robinson said. “McKinsey is in the guts of companies they are hired to analyze.”

Many other American — and other — businesses have links with both China and the U.S., but consultant McKinsey poses a special risk in that it has access to the secrets of the U.S. government and at the same time depends on China. This is not to say McKinsey has done anything wrong, but it is to say temptation must exist and the risk to America is great.

So as a prophylactic measure, to guard against the leakage of critical secrets, Washington should make McKinsey — and other businesses — choose: work for America or work for China, but not both.

In the case of McKinsey, this is a matter of urgency. The firm is now run from Hong Kong by managing partner Kevin Sneader.

I asked McKinsey for comment on the potential for harm to American national security due to its relationship with China, and this is its reply from a spokesman:

Like most other multinational companies – including professional services firms, banks, technology companies, auto manufacturers, entertainment and media companies, and consumer product manufacturers – our firm operates in many parts of the world, including China. In undertaking our work, we adhere to applicable laws, regulations and government agency requirements.

Regarding our work with U.S. public sector clients: we comply with U.S. government requirements, including those governing data protection and IT security. We employ the requisite hardware and other security protocols, and where relevant our U.S. public sector teams are subject to the same security clearance requirements as comparable government employees. We protect our clients’ sensitive and confidential information.

Contrary to your assertion, the vast majority of our work in China is with private-sector clients including U.S. and multinational corporations, which we advise on the same core management topics we routinely deal with in our work with private-sector organizations in other markets. In total, our work in China represents a small fraction of our firm’s worldwide client service.

Gordon G. Chang is the author of The Coming Collapse of China and The Great U.S.-China Tech War. Follow him on Twitter @GordonGChang.