US consultancies struggling to find projects in China

Amid a state security crackdown on the professional services sector and foreign capital flight due to worsening geopolitical conditions, US consultancies are struggling to find work in China, according to a Financial Times report.

China in April approved a new espionage law that expanded the list of activities categorized as spying. The same month, Chinese police raided Bain & Company’s Shanghai office, seizing devices and questioning employees.

In May, police raided Capvision, a consultancy with a network of 450,000 experts that provides industry research and advice to investors, corporations, and management consultancies. The consultancy was accused of “degenerating into an accomplice of overseas intelligence agencies.”

People briefed on the matter told the Financial Times that Bain was probed over the hiring of an expert from Capvision. The expert, who worked at a state-owned company, was enlisted by Bain for a semiconductor-related market assessment for a South Korean firm.

In the aftermath of the raid, some clients have been reluctant to work with Bain. Mengniu, a state-backed dairy company, recently cancelled a marketing engagement with Bain.

“Clients are saying we can no longer work with American consulting firms,” an executive at a US consulting firm told the Financial Times.

Worsening relations between the West and China, as well as pandemic mismanagement, have led to declining foreign interest in the country – and less work for consulting firms. Private equity firms, who often tap consultancies for advice, have pulled back on investments in China, contributing further to the lean times for MBB strategy firms.

Roughly half of McKinsey staff in China do not have paid client projects to work on, sources told the Financial Times. A junior consultant described the firm as a “sinking ship.”

Meanwhile, Boston Consulting Group has been holding strategy sessions on how to turn around its flagging business, people familiar with the matter said.

Bain has pushed back start dates for new hires to 2025, and earlier this year offered voluntary six-month leave to China staff.