The legal and regulatory risk of doing business in China may be about to get a lot higher. The China Securities Regulatory Commission is implementing changes to its rules governing publicly offered securities investment funds. These rules include requiring foreign-owned fund managers such as BlackRock and Fidelity to create Communist Party cells when operating in China.
Many foreign investors have assumed these rules would apply only to Chinese businesses and state-owned enterprises. China analysts, however, have been warning since 2018 that these laws could soon apply to foreign-owned companies operating through Chinese joint ventures. Since 2016, Xi Jinping has pushed for state-run companies and subsidiaries of foreign-owned companies to establish cells through the provisions of the Chinese Communist Party’s Articles of Association.