Expert network consulting company Gerson Lehrman Group has become the latest due diligence firm to cut jobs in China as Beijing intensifies scrutiny of the sector on national security grounds.

US-based GLG, which maintains a network of specialists that global investors can tap to do due diligence on transactions, began laying off China staff last month, said several people familiar with the matter.

The lay-offs come as Beijing cracks down on foreign consultancies this year, alarming international investors at a time of growing tensions between the US and China. The campaign has made operating in China more difficult for foreign companies, which depend on the consultants to help navigate the world’s second-largest economy.

GLG declined to comment. But a source close to the company said that in May, GLG instituted global workforce cuts of about 3.5 per cent to better align its business with client needs, increase efficiency, and accelerate its investments in other areas.

The company announced last week it had replaced its former chief executive officer Paul Todd with Gemma Postlethwaite, the former chief executive of business information company Arizent.

The source close to the company said the workforce reduction in China was in line with the global reduction.

However, GLG had initially planned to expand in China early this year, with the firm moving staff in Shanghai to a new office and hiring new employees, said one person with knowledge of the situation.

“GLG was bullish in March, and said business was booming. They were hiring and had just moved into bigger offices,” the person said.

GLG had stepped up compliance checks in recent weeks after the raids, said the person, adding that clients were increasingly nervous about using China-based experts.

Expert network groups and other consultants conducting due diligence for foreign companies have been under pressure in China after state media revealed in May that police had raided multiple offices of Capvision, a company with extensive operations in China, for national security reasons.

Capvision was accused of tapping people in government to provide sensitive information to overseas clients, including military-related data, according to Chinese state media. 

The Capvision raid was part of a series of investigations this year on foreign consultancies in China, which also included Bain & Company and due diligence group Mintz, whose five local employees were detained in March. 

The Financial Times reported last month that US tech-focused group Forrester Research was cutting jobs in response to growing restrictions on foreign businesses operating in China. The firm said it was closing its China office as part of a previously announced global restructuring.

Investors and foreign multinationals say the crackdown makes it difficult to do due diligence for investments and procurement contracts with Chinese partners and suppliers.

GLG said in a prospectus for an initial public offering filed in the US in 2021 that its “Greater China Business Unit”, which included mainland China, Hong Kong and Taiwan, accounted for 6.8 per cent of its total revenue in the first half of that year. It later withdrew from the IPO.

It warned in the prospectus that “the Chinese government may intervene or influence our operations at any time, which could result in a material change in our operations”.

“The rules and regulations and the enforcement thereof in China can change quickly with little advance notice” it said in the IPO prospectus.

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