Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Top Republican lawmakers have called for McKinsey to be banned from securing federal contracts in the US following the revelation that a think-tank led by the consulting firm gave policy recommendations to the Chinese central government.
Marco Rubio, the vice-chair of the Senate intelligence committee, and Michael McCaul, the chair of the House foreign affairs committee, said McKinsey had undermined US security through the think-tank’s role in the development of Beijing’s 13th five-year plan in 2015.
“It’s shocking that a US company allegedly supported the Chinese Communist party’s efforts to develop policies and plans that violate international trade rules and threaten American national security and economic interests,” McCaul told the Financial Times on Friday.
“Companies supporting our adversaries’ military or human rights abuses shouldn’t receive contracts paid for with the taxpayer money of hardworking Americans.”
McCaul was responding to an FT report that the Chinese government’s central planning agency had commissioned a McKinsey-led think-tank called the Urban China Initiative to produce research for Beijing’s 2016-2020 five-year plan.
That plan committed China to boosting its technological capabilities and contributed to a rise in Sino-US tensions, which has included a more hawkish mood in Washington towards western businesses’ work in China.
Bob Sternfels, McKinsey’s global managing partner, this month told Congress he was unaware of the firm having ever worked for the Chinese central government. McKinsey this week stood by the statement, saying UCI was a separate entity set up in partnership with two universities and McKinsey had not authored the research that UCI did for China’s National Development and Reform Commission.
“McKinsey appears to have lied multiple times about its relationship with the Chinese Communist party,” Rubio told the FT. “We need to learn more about McKinsey’s role in helping develop China’s five-year plans, but at this point it is impossible to justify any McKinsey contracts with the US government.”
In response to the FT story, Republican Senator Josh Hawley also said McKinsey should no longer be able to obtain federal work.
“McKinsey — and any consulting firm that helps China — should be BANNED from getting US government contracts,” Hawley wrote on X.
A spokesperson for the Democratic staff of the House China committee said the FT report was “deeply concerning” and the panel would be inquiring into the matter. “We remain committed to understanding how the CCP capitalises on American expertise, and how US experts navigate conflicts of interest,” he said.
Responding to the lawmakers’ comments, McKinsey said: “We reject efforts to use a document McKinsey didn’t write and work we didn’t do to call into question our 75-year history of supporting the US government.”
The firm has won $1bn in contracts from the US federal government since 2008, according to the USAspending.gov database, and is also often a subcontractor on projects led by others.
It has been frozen out of consulting for the Food and Drug Administration, the US medicines regulator, for the past three years after its work for opioid manufacturers attracted conflict of interest accusations, leaving the US defence department as its biggest federal government client. The Pentagon has steered at least $450mn in work to McKinsey since 2008, according to the database, and the figure is likely to underestimate the total because sensitive national security contracts are excluded.
In the most recent fiscal year to September 2023, McKinsey was paid at least $101mn by the federal government, including $63mn from the Pentagon. The firm has annual revenues of about $16bn globally.
The UCI’s work for Beijing in 2015 came in the form of a 310-page book that advised deeper co-operation between the Chinese military and business and policies to push foreign companies out of sensitive industries, among dozens of recommendations.
The book drew on work by McKinsey’s in-house research arm, according to an introduction written by Lola Woetzel, UCI founder and co-chair, who is one of McKinsey’s most senior partners in China.
The rising pressure from lawmakers comes as Congress steps up scrutiny of US companies’ business interests and investments in China. The House China committee in particular has been taking aim at companies and has asked the chief executives of three US semiconductor manufacturers — Intel, Nvidia and Micron — to testify before Congress.
US companies are concerned the temperature could rise further ahead of the American presidential election in November.
Read the full article here
