Secret China business

The arrest of Stern Hu, Googlegate and a leaked report from British security agency MI5 have resulted in a paradigm shift in the way major companies operate in greater China, with new security measures being implemented to protect company secrets from prying eyes.

Sources working for some of Australia's top law firms in greater China have told Business Spectator that companies are adopting a raft of measures to ensure commercially sensitive information and intellectual property is being kept safe when travelling in China. These measures include executives being instructed not to travel with their own laptops or Blackberries, lest they be stolen or the executives detained and the devices confiscated. Not only can emails and files be accessed, but sometimes databases outside China can be reached, if document management systems are networked.

Lawyers for some of Australia's biggest companies are also advising executives not to have any discussion within Chinese borders on price sensitive issues in case conversations are 'overheard'. An executive working for one of Australia's biggest companies was even instructed not to hold any informal dialogue with government officials and to limit any discussion to official meetings with witnesses and note-takers.

Companies adopting these strategies include some of the world's biggest corporations, including Australian and international resource and energy firms, as well as European investment banks operating in the region.

While on-the-record it's business as usual for companies operating in China, sources say that behind closed doors the arrest of Stern Hu has sent shockwaves through the Australian business community. In an interview with ABC's Inside Business, BHP Billiton CEO Marius Kloppers hinted at the tremors sent through Australia's corporate sector by the arrest.

"Obviously the Stern Hu events of last year and continuing into this year gave us great concern, particularly for our Chinese staff who stand in front of customers every day doing the same job,” he said. "And that created some anxiety. But you know luckily we were able to do business as usual pretty much throughout that period."

Executives are now being much more careful about any and all communication – including both written and by phone or in person.

"No one expected what happened to Stern Hu to happen,” one source, who advises some of Australia's biggest corporations, told Business Spectator. "We are recommending that companies exercise an abundance of caution”.

While the moves might seem cloak and dagger to some, Australians are realising what Chinese people have known for years – big brother is watching you. Last month a report in the Times of London cited a leaked MI5 report that made explosive allegations about corporate espionage by the Chinese government.

The report claims undercover intelligence officers from the People's Liberation Army and the Ministry of Public Security have approached UK businessmen at trade fairs and exhibitions with the offer of "gifts” and "lavish hospitality”. Gifts of cameras and memory sticks have later been found to contain computer viruses that allow remote access to infected computers. The report says the Chinese government "represents one of the most significant espionage threats to the UK” because of its use of these methods, as well as widespread electronic hacking.

In January an announcement from Google that it was considering pulling out of China caused yet more alarm in markets. It was a result of a "highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property from Google". Google said the attack was not just on Google, but also on "twenty other large companies from a wide range of businesses – including the internet, finance, technology, media and chemical sectors". The aim of the attack on Google was thought to be accessing the Gmail accounts of human rights activists.