HONG KONG, Yahoo Inc. has suspended its services in China as of Monday, citing an “increasingly difficult” legal and business environment.
As strict data privacy laws in China have taken effect, foreign technology companies have had to close down or reduce their operations in China.
These companies decided that the reputational and regulatory risks of remaining in the vast market outweigh the benefits.
WHAT FOREIGN TECHNOLOGY COMPANIES ARE DOWNSIZING OPERATIONS OR LEFT CHINA RECENTLY?
Yahoo Inc. stated Tuesday that its services in China have been halted as of November 1. Yahoo users visiting the Engadget China website this week will see a popup warning that the site won’t publish new content.
LinkedIn, Microsoft’s professional network platform for professionals, announced last month that it will shut down the Chinese version of its website this year and replace it by a jobs board without any social networking functions.
Epic Games, the company behind Fortnite, has announced that it will remove the game from the China market starting Nov. 15. It was launched in China through a partnership with Tencent, China’s largest gaming firm, which holds a 40% stake.
WHY IS CHINA BEING LEAVEN BY COMPANIES NOW?
The Personal Information Protection Law, which took effect Nov. 1, limits the information companies can gather and establishes standards for its storage. Users must consent for companies to use, collect or share their data. There should also be a way to opt-out of data sharing.
Companies must also obtain permission to send personal information overseas.
This new law increases compliance costs and creates uncertainty for Western companies that operate in China. Companies found breaking the rules could face a fine of up to 50,000,000 yuan ($7.8million) or 5% on their annual revenue.
Chinese regulators have taken steps to crack down on technology companies. They are trying to reduce their influence and address complaints about companies using data in ways that harm consumers’ interest.
As the U.S. and China fight over trade and technology, there is also a downsizing of staff and the possibility of departures. Washington has placed restrictions on Huawei, a Chinese telecoms equipment company, and other tech companies from China. They claim they have ties to China’s military or government.
Local businesses are also feeling it, as e-commerce giants like Alibaba face fines. Regulators are currently investigating certain companies and have imposed strict rules for gaming companies like NetEase or Tencent.
What other challenges do FOREIGN TECH COMPANIES face in CHINA?
China has what is called a “Great Firewall”, which enforces censorship through laws and technology.
It is important to remove any content or keywords that are considered politically sensitive or offensive from the internet. Companies should monitor their own platforms and remove posts or make sensitive keywords inaccessible.
The Great Firewall has long blocked western social media networks like Twitter and Facebook. They are therefore generally unavailable for mainland Chinese citizens.
“China has implemented a very draconian rule governing internet operators telling them what they should do, especially not to do,” Francis Lun, CEO at GEO Securities Limited in Hong Kong, said.
He said, “I think it comes down to the question of why bother (operating in China as a foreign company) with such a low return and such heavy liability.”
Michael Norris is a researcher strategy manager at AgencyChina, based in Shanghai. He stated that compliance costs will continue to rise.
He said that Fortnite’s exit was particularly devastating because it showed not even a close partnership with Tencent and an investment is sufficient to make the business case viable.
Chinese tech companies also face pressure from home markets. Some U.S. lawmakers have criticized LinkedIn for censoring U.S. journalist profiles from China. Yahoo Inc. was criticized for leaking information about Chinese dissidents that led to their imprisonment in 2007.
What does this mean for INTERNET USERS IN CHINA?
Over the years, Chinese alternatives have emerged to fill the gap left by foreign social media platforms which have stopped operating under the Great Firewall.
Baidu is China’s top search engine, replacing Google. Instead of WhatsApp and Messenger, messaging apps such as WeChat can be used. Weibo is a microblogging platform that has more than 560 millions Chinese users.
Chinese users have limited options for social networking and content access, and will likely turn to restricted local alternatives if they don’t use a virtual private networks (VPN).
