Exclusive | China poised to plant ‘Communist Party spies’ inside US firms – including Microsoft, critics warn

China’s government is positioned to embed “Communist Party spies” into Microsoft and other US companies doing business in the country – and further expose them to trade secret theft, employee theft and even scare tactics. intimidation, The Post has. learned.

A new version of Beijing’s “company law” that came into force on July 1 – a tightening that has received little coverage in the Western press, according to experts – requires multinational firms with more than 300 workers in the country to appoint a ” “Employee representative” on the board of directors of their subsidiary in China.

Sources tell The Post that the “representatives” are almost certain to be in regular contact with Chinese authorities — if not outright members of the Chinese Communist Party. This, in turn, would give Beijing a direct line into the sensitive inner workings of US firms.

The new rules, which could alternatively require companies to adopt a local supervisory board for workers, could also give the CCP formidable tools to exert control over employees of US companies, according to US officials.

“They can show a [Chinese intelligence] agent, “That’s the person you need to talk to. If you want to compel them, that’s who they are,” a House aide briefed on the law told The Post. “I have access to employee records . This is their wife. Here they live. This is where the child goes to school

Corporate spies for Beijing may also seek to infiltrate confidential meetings or even facilitate the theft of intellectual property by telling an employee to insert a flash drive into a particular computer, said the House aide, who asked not to be identified.

Executives spying for CCP could gain dangerous knowledge about a company’s “pressure points” if authorities wanted to exploit them, the source said.

The new laws also include stricter “registered capital” requirements for company executives and greater liability for officers in cases of misconduct or negligence.

It is the latest effort by President Xi Jinping’s government to exert more control over foreign businesses, according to Paul Rosenzweig, a former deputy assistant secretary of Homeland Security.

“In the past, they’ve done it in ways that I would characterize as external,” meaning the government acting on a corporation,” Rosenzweig said. “Now they’re adding an internal control, an employee representative. If you want to be generous, you can call him a spy of the Communist Party.â€

As China’s corporate law overhaul applies to many companies, Microsoft has been in the spotlight — not just because it has more than 10,000 employees working there, but because its software is deeply embedded in America’s critical infrastructure.

Last year, a China-based group brazenly hacked the Microsoft email accounts of Commerce Secretary Gina Raimondo and several other US officials.

Microsoft, which declined to comment for this article, has been expanding operations in China even as other big tech firms such as Google and Meta have scaled back their presence in the region. The company has sought to downplay security concerns related to China.

When asked by Rep. Carlos Gimenez (R-Fla.) in June whether the company follows a 2017 law requiring companies to cooperate with CCP intelligence services, Microsoft executive Brad Smith said no — and left to understand that the company was somehow excluded.

“There are two types of countries in the world. Those who enforce every law they make, and those who make certain laws but don’t always enforce them. And in that context, China and that law are in the second category,” Smith said.

Gimenez was unconvinced by Smith’s explanation — and told The Post he was particularly concerned about China’s revised company law.

“Sooner than later, all these corporations will find that they will be absorbed into the CCP and into China,” Gimenez said. “The sooner they start moving away from China, the better off they’ll be, but the better off America will be.”

As The Post has reported, US lawmakers have warned Microsoft that its cozy relationship with China poses a national security risk — especially as the company pursues advanced artificial intelligence.

Microsoft is said to have considered closing a pair of AI labs in China because of perceived risks — including concerns that China could hack the facilities, steal sensitive technology or poach key employees to build its rival firms.

The corporate law is a method through which China “can put pressure on them to keep the AI ​​lab,” according to the House aide.

“More realistically, they won’t. What they’re going to do is just steal all the data, every single piece of data, the aide added.

Rep. John Moolenaar (R-Mich.), chairman of the House Select Committee on China, said in a statement that “there is no such thing as a private company in China.”

“I warn all Americans doing business in China – the Chinese Communist Party will settle for nothing less than complete control over your spending,” Moolenaar added. The “workers’ representatives” are an open attempt by the CCP to introduce Party officials into American companies.

Sen. Marsha Blackburn (R-Tenn.) said Congress has long known that Beijing would steal confidential business information and technology from companies operating in China.

“Beijing’s latest move, which is likely to involve CCP officials further into the company, shows how far the government’s grip extends,” Blackburn told The Post.

The board representative clause is “certainly another risk factor” for Western firms, according to Jonathan Bench, an expert in Chinese corporate law and partner at Harris Sliwoski.

“I absolutely expect CCP members to be elected by ‘democratic elections’ in which employees vote,” Bench said. “And where a CCP member is not directly elected, the designated employee representative will of course report in detail to one or more CCP cadres inside or outside the company – or both.”

It is unlikely that Microsoft or other firms like it will be able to avoid the law, according to the Bench.

“I do not see any way to evade this legal requirement,” the Bench added.

Some experts argue that concerns about changing China’s corporate law are overblown.

Adam Channer, a lawyer at Kirton McConkie with expertise in international investments, said the employee director rule would be a “clumsy tool” to enable CCP oversight of Western businesses – and noted that the law, as written , does not require the director to be a member of the PKK.

The bigger issue, according to Derek Scissors, China Beige Book’s chief economist, is that US firms like Microsoft “have voluntarily subjected themselves to a completely distorted and discriminatory market”.

“The Companies Act will be interpreted in whatever way the CCP sees fit at the time, so none of the revisions matter,” Scissors said.