Exit Ban Risk When Doing Business in China – Hold ‘Em, Fold ‘Em or Return?

We invited Cal Poly Orfalea College of Business faculty members Chris Carr and Jack Wroldsen to submit this guest post, and they kindly agreed to do so. Their recent scholarly research focuses on exit bans in business disputes.

 As the business door to China reopens, however slowly that may be, who will return and is there risk in doing so?

Foreigners with longstanding business, academic or personal ties to China may be reluctant to visit, in part due to the newly passed Hong Kong National Security Law or tribulations of Canadians Michael Kovrig and Michael Spavor.  Further, fear and the risk of detention due to exit bans are back in the news. As the Wall Street Journal reported in Dozens of Americans Are Barred from Leaving China, Adding to Tensions:

The U.S. increasingly clashes with China over legal issues involving citizens that test the countries’ diametrically opposed judicial philosophies. Legal experts say virtually any party to a civil dispute in China involving a foreign national can ask local police to add their opponent’s name to a national database of exit bans that police check at every airport, railway station and other border crossing. Courts in the U.S. sometimes order foreign nationals to surrender their passports, primarily defendants in criminal cases, who have the right to appeal such an order. It is rare that a party in a U.S. civil case is blocked from traveling, legal experts say. U.S. authorities say they don’t know how many Americans face exit bans in China, as targets of such bans often fear that involving diplomats could be viewed as provocative and deepen their predicament.

 Business travelers typically learn of an exit ban at the airport when the Chinese authorities prevent the traveler from boarding an international flight or crossing the border but otherwise leave the person free to travel within China. An exit ban is therefore distinct from a debt or commercial hostage situation (Carr & Harris, 2021) in which the foreigner’s freedom of movement within China is restricted.

Our recent article in the Thunderbird International Business Review (Exit Bans When Doing Business in China) investigates exit bans in China using a data set obtained from multiple countries whose citizens were subjected to an exit ban when trying to leave China. The countries studied were the United States, Germany, Netherlands, United Kingdom, Australia, and Canada. We obtained the data through each country’s equivalent to a U.S. Freedom of Information Act (FOIA) request. We also located cases from English and Mandarin media articles.

For our study, we looked only at exit bans in the context of civil business disputes between a foreign businessperson and his or her local Chinese counterpart, where the foreigner was prevented from leaving China. As such, we excluded exit ban cases that arose from political motivations or criminal charges.

Section 4.5 of our Thunderbird article offers practical recommendations for China business travelers to consider in confronting ongoing exit ban risks. In addition to the practical recommendations, our analysis yielded four primary findings:

1. The data revealed at least 128 total cases, and approximately one-third of the cases were driven by business disputes. It is likely that many more of the 128 cases were caused by business disputes, but because much of the data we received from government agencies was provided in aggregate form, we were unable to verify the driving force behind such cases.

2. In the business-related cases, Chinese authorities generally appeared to follow applicable exit ban laws and application processes, thereby pushing back on the narrative that local norms and a culture of ignoring the law trump the legal mandates issued from Beijing.

3. Most exit bans took place in Tier 1 cities or coastal regions (where more foreign business activity is concentrated), although scattered cases occurred in more remote locations, thus indicating that foreign business interests may be at risk in cities of diverse sizes throughout China.

4. The concern within the international business community that the term “responsible person” under Chinese exit ban law would be abused by authorities to also restrict the movement of non-senior level businesspeople finds some limited confirmation in our data, although most exit ban cases we located were brought against senior-level executives.

Implications:

Does any of this still matter, particularly when China remains in some level of COVID lockdown and few foreigners are travelling to China these days? The answer is yes. In due time there will be an easing of quarantine requirements for foreigners and China won’t maintain its zero-COVID approach forever. But that still leaves an elephant in the room that needs to be addressed – when a full reopening occurs will foreign businesspeople choose to return?

To try to assess this question, we recently conducted an informal and admittedly unscientific poll on LinkedIn which asked:

If you are a foreigner with business ties to China, how likely are you to travel to China once COVID restrictions are fully lifted? 

20 people responded publicly, as follows:

Definitely: 4 (20%)

Probably: 7 (35%)

Probably not: 5 (25%)

Definitely not: 4 (20%)

More interesting were the 34 private responses received, where people overall expressed less willingness to return to China than the public responders in (paraphrased) comments like, “I’m concerned with being canceled regardless of how I respond publicly, but here is my private vote.” The 34 private responses were as follows:

Definitely: 5 (15%)

Probably: 8 (24%)

Probably not: 11 (32%)

Definitely not: 10 (29%)

Although these collective responses are not a huge sample size, they are nevertheless indicative of the seemingly growing reticence of some businesspeople to return to China.

Relatedly, in June 2021 China File explored a similar question (“How Likely Are You to Travel to China Once COVID Restrictions Are Lifted?”). China File received 121 responses (see below), and although its efforts also do not constitute a scientific survey, its results signaled a significant shift in attitudes among well-known professionals in the China field:

Definitely: ~33 (27%)

Probably: ~21 (17%)

Unsure: ~19 (16%)

Probably not: ~22 (18%)

Definitely not: ~26 (22%)

See also Westerners are increasingly scared of traveling to China as threat of detention rises.

Remember, also, that most exit ban cases probably go unreported because the targets or victims don’t wish to make their situation with Chinese authorities or their local business partner even worse, so our early research results likely only highlight the tip of the exit ban iceberg.

In summary, even when the business doors to China reopen more fully, in light of exit ban and other related risks, it appears some business people are either entirely unwilling to return, or are at least hesitant, although others do still express the intent to return. For those who do return, remember: the time for an exit ban strategy is before you are stopped at the border!