Companies have determined that the dangers of regulatory uncertainty and brand damage exceed the benefits of remaining in such a large market. Yahoo is exiting the Chinese market, halting services as of Monday due to an “increasingly tough” economic and legal environment, according to the company.
As a rigorous data privacy regulation governing how companies acquire and retain data takes effect, foreign technology firms have been withdrawing or shrinking their operations in mainland China. These businesses have determined that the regulatory uncertainty and reputational dangers exceed the benefits of being in such a large market.
Which international technology companies have recently reduced their presence in China or departed the country?
In a statement released Tuesday, Yahoo stated that its services in China had ceased as of November 1. Users who visit the Yahoo-owned Engadget China site this week will get a popup message stating that the site will not be updated.
Microsoft’s professional networking website LinkedIn announced last month that it would shut down its Chinese version this year and replace it with a jobs board with no social networking features.
Why are companies leaving China now?
The Personal Information Protection Law, which went into effect on November 1, imposes limits on how much information businesses can collect and how it must be handled. Companies must obtain consent from users before collecting, using, or sharing data, as well as give ways for consumers to opt-out of data sharing. Companies must also obtain permission to send consumers’ personal information outside of the United States.
For Western corporations working in China, the new regulation raises compliance costs and creates uncertainty. Companies who break the restrictions face fines of up to CNY 50 million (approximately Rs. 58.17 crores) or 5% of their annual turnover if detected.
Chinese officials have slammed the brakes on technology firms, attempting to limit their power and address allegations that some firms misuse data and engage in other practices that harm customers.
The layoffs and downsizings coincide with a trade war between the United States and China. The US has placed restrictions on Huawei, a Chinese telecoms equipment company, and other Chinese tech firms, alleging that they have ties to China’s military and government.
Local businesses are feeling the spotlight as well, with e-commerce giants such as Alibaba facing fines. Some corporations are being investigated by regulators, and tight limits have been enforced on gaming giants such as NetEase and Tencent.
What other hurdles do foreign tech companies face in China?
China has a “Great Firewall” that enforces censorship through laws and technologies. Politically sensitive or inappropriate content and phrases must be removed from the internet. Companies must control their own platforms, removing posts and preventing crucial terms from being found.
The Great Firewall has long restricted Western social media networks like Facebook and Twitter, making them inaccessible to mainland Chinese citizens.
“China has put in place a very draconian policy overseeing internet operators, telling them what they can and cannot do,” said Francis Lun, CEO of GEO Securities Limited in Hong Kong.
“I think the question is why bother (operating as a foreign company in China) when the return is so low and the risk is so high,” he said. Compliance expenses will continue to climb, according to Michael Norris, a research strategy manager at Shanghai-based consultant AgencyChina.
“The exit of Fortnite is particularly painful,” he added, “since it demonstrates that even a close cooperation and investment with Tencent isn’t enough to make the business case work.”
Foreign tech businesses operating in China are likewise subjected to domestic market pressures. LinkedIn’s censoring of US journalist profiles in China has been questioned by several US politicians. Yahoo was chastised in 2007 for providing the Chinese authorities with information about Chinese dissidents, which led to their detention.
What does this signify for Chinese Internet users?
Over time, Chinese alternatives have sprung up to fill the hole left by international social media platforms that have abandoned the Great Firewall.
Baidu, rather than Google, is China’s most popular search engine. Instead of WhatsApp or Messenger, messaging apps like WeChat are used. With over 560 million Chinese users, Weibo, a microblogging site, is the closest comparable to Twitter.
Unless they utilize a virtual private network (VPN) to hide their internet traffic and location and bypass web restrictions, Chinese citizens have fewer options for social networking and content access and are more likely to rely on heavily restricted local alternatives.
