China makes a show of corporate raiding

This is an audio transcript of the FT News Briefing podcast episode: ‘China makes a show of corporate raiding’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, May 11th, and this is your FT News Briefing.

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Disney’s whipping its streaming services into shape. And US inflation showed signs of easing. Plus, Chinese authorities have been raiding the offices of foreign business consultants and they want everybody to know about it.

Joe Leahy
This was the government really coming out and saying “Be careful”.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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Disney’s CEO Bob Iger has been under pressure to stop all the losses at its streaming services like Disney Plus and Hulu. And he seems to be doing something right. Yesterday, the entertainment giant reported earnings and said it had reduced streaming losses by 26 per cent from last year. Disney said it did that partly by cutting marketing costs. And streaming revenue rose 12 per cent, but that’s thanks to higher fees. The company said total subscribers, they fell from the previous quarter, but just slightly.

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US inflation seems to have eased a bit. Data out yesterday shows that the inflation rate in April dipped to 4.9 per cent. That’s a cinch lower than the previous month, but it’s still the lowest level in two years. The FT’s US economics editor Colby Smith says the good news came from core services.

Colby Smith
So one of the positive metrics here was the fact that core services, once you strip out housing-related costs and strip out energy-related costs, things that are very volatile, that are, you know, not usually driven by a demand for labour, that decelerated quite significantly back in April. This is a metric that the Fed itself has said it’s paying very, very close attention to. The fact that we saw this downward shift in that pace, I think, was quite encouraging for people.

Marc Filippino
OK. So that’s the positive news out of the report. What about the negative stuff?

Colby Smith
The fact of the matter is that inflation is still running far too high. And I think more than anything else, what you hear from economists is the fact that no one really wants to be head-faked, because we’ve had periods over the last two years really where inflation looked to be trending in the right direction only to, you know, abruptly reverse course and start to accelerate again. So there’s just this real hesitancy, I think, amongst economists and policymakers at the current moment to declare victory in any way.

Marc Filippino
Head fake — love that. We’re gonna get another Fed meeting in about a month’s time, mid-June. And, you know, we’re probably gonna to talk to you before then. Coby Smith is the FT’s US economics editor. Thanks, Colby.

Colby Smith
Thank you.

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Marc Filippino
China’s state TV put out a big report this week about a police raid on a foreign business consultancy called Capvision. It was the latest raid in a broader crackdown on consulting groups that help foreign investors do business in China. The FT’s Beijing bureau chief, Joe Leahy, has been following this and was at home watching TV when the Capvision raid came on the news.

Joe Leahy
And there was this big, slickly produced 15-minute in-depth special report on Capvision and pictures of police going through servers and grabbing people’s computers and hard drives and things. Basically your worst nightmare, I guess.

Marc Filippino
Now, Joe, can you remind listeners what these foreign corporate consultants do in China?

Joe Leahy
Yeah, this industry is, it’s very big and it’s extremely important in a place like China where information sometimes can be hard to get. And the law is frequently very, sort of, very general and hard to pin down. So if you’re acquiring a company in China, you want to know who the partner is or you want to know about its profit margins. And these things aren’t public. You really need the help of these due diligence people to really find that sort of stuff out. The other issue is with increasing US sanctions on Chinese companies. You really need to know where the stuff that you’re sourcing and buying, where it comes from and whether or not it’s actually compliant with the US and European export laws.

Marc Filippino
So what’s the message that Beijing is trying to send with this crackdown on foreign business consultants?

Joe Leahy
It’s signalling to people in China, especially professionals and other people who deal with consultants and people in state-owned enterprises and other people have access to information, that they should be very careful, especially when dealing with consultancies and especially when these consultancies have foreign links. So I think the message is, very clearly, that people need to be very careful about sharing information, especially with foreign organisations. To me it was almost like the walls have ears, you know, that kind of moment. We managed to speak to the former compliance officer of Capvision and he said, for this to suddenly be splashed all over television, this was actually a political statement more than anything else. This was the government really coming out and saying, you know, national security is more important than, you know, many economic concerns. You know, be careful.

Marc Filippino
So speaking of economic concerns, as you mentioned, these consultants are, they’re really important to foreign investors and their ability to do business in China. Could these raids have an impact on foreign investment?

Joe Leahy
Yeah, definitely. I think there will be an impact. Perhaps people will be less inclined to do them. The deals that are a little bit more risky or the information is harder to get because they simply won’t be able to get as much information as they used to get before. You have an obligation to the, to your board or to your shareholders to obtain certain, you know, a certain amount of information about the target company or about the product that you’re trying to source. If you can’t do it, then you can’t do the deal.

Marc Filippino
So, Joe, the thing I’m really interested in is that China has come out recently and sent a bunch of messages saying it wants more foreign investment. It’s basically said that, you know, it’s gonna roll out the red carpet. Then you have these raids. It’s kind of a mixed message.

Joe Leahy
I think the problem really is, is that security has become a very high priority and it’s actually competing, in terms of the priorities of the bureaucrats and the agencies, with development. And so you’re getting this kind of these mixed messages coming through. And I think certainly the foreign communities and investors are really watching this and sort of wondering, you know, what on earth do we do with this?

Marc Filippino
Joe Leahy is the FT’s Beijing bureau chief. Thanks, Joe.

Joe Leahy
Thanks very much.

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Marc Filippino
Before we go, the streaming site Spotify is struggling with an artificial intelligence music start-up called Boomy. People use Boomy to create machine-generated songs like this thing that kind of resembles music . . . 

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And the more streams a song gets — this thing got 59,000 streams — the more money the Boomy customers get. But Spotify recently suspected that a lot of Boomy’s song streams weren’t coming from real people. It thinks Boomy is using bots to inflate the streaming numbers in order to boost its customers’ payments. Spotify recently removed tens of thousands of Boomy’s songs from its site. Boomy’s response? It says it’s against artificial streaming and is, quote, “working with industry partners to address this issue”. 

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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