Why are foreign technology companies withdrawing from China?

Hong Kong — Yahoo Inc. will withdraw from the Chinese market and will cease service in the Chinese market on Monday due to the “increasingly difficult” business and legal environment.

Foreign tech companies are withdrawing or shrinking their operations in mainland China as a strict data privacy law that specifies how companies collect and store data.

Such companies have determined that regulatory uncertainty and reputational risk outweigh the benefits of staying in a huge market.

Which foreign tech company has recently shrunk or left China?

Yahoo Inc. said in a statement Tuesday that services in China would cease on November 1. Users who visited the Engadget China site operated by Yahoo this week found a pop-up notification that the site wouldn’t publish new content.

Last month, Microsoft’s professional networking platform LinkedIn announced that it would shut down its Chinese site this year and replace it with a job board that doesn’t have social networking capabilities.

Epic Games, which runs the popular video game Fortnite, has also said it will withdraw the game from the Chinese market on November 15. The game was launched in China in partnership with China’s largest game company, Tencent. I own a 40% stake in Epic.

Why are companies leaving China now?

The Personal Information Protection Law, which came into effect on November 1, limits the amount of information that companies can collect and sets the standard for how to store it. Enterprises need to obtain user consent to collect, use, or share data and provide a way for users to opt out of data sharing.

Companies also need permission to send their personal information abroad.

The new law raises the cost of compliance and raises the uncertainty of Western companies operating in China. Companies that violate the rules can be fined up to RMB 50 million ($ 7.8 million) or 5% of their annual revenue.

Chinese regulators are cracking down on tech companies to curb their influence and address complaints that some companies are misusing data or engaging in other tactics that undermine consumer interests.

As the United States and China compete for technology and trade, miniaturization and withdrawal will also occur. Washington imposes restrictions on telecommunications giant Huawei and other Chinese tech companies, claiming to be associated with the Chinese military and Chinese administration.

Local companies are also enthusiastic as e-commerce companies like Alibaba are facing fines. Regulators are investigating some companies and are imposing strict rules that affect gaming companies such as NetEase and Tencent.

What are the other hurdles foreign tech companies are facing in China?

The Chinese Communist Party administration operates what is known as the “Great Firewall,” which uses law and technology to enforce censorship.

Content and keywords that are considered politically sensitive or inappropriate should be removed from the Internet. Enterprises need to monitor their platform, remove posts, and prevent searches for sensitive keywords.

Western social media networks such as Facebook and Twitter have long been blocked by the Great Firewall and are generally inaccessible to people in mainland China.

Francis Lun, CEO of GEO Securities Limited in Hong Kong, said:

“The question is why (acting as a foreign company in China) bothered (acting as a foreign company in China) suffering from such limited interests and such heavy responsibilities. I think it is, “he said.

Compliance costs will rise further, said Michael Norris, research strategy manager at Shanghai-based consultancy Agency China.

“Fortnite’s withdrawal is particularly damaging because it hasn’t even shown a close partnership. Investing with Tencent is enough to make the business case work,” he said.

Foreign tech companies operating in China are also facing pressure from their own markets. Some US lawmakers have criticized LinkedIn for censorship of US journalist profiles in China. In 2007, Yahoo Inc. was accused of handing over information about Chinese dissidents to the Chinese administration, eventually leading to their imprisonment.

What does this mean for Chinese internet users?

Over the years, Chinese alternatives have emerged to fill the void left by foreign social media platforms that have given up operating under the Great Firewall.

Instead of Google, Baidu is the most popular search engine in China. Messaging apps such as WeChat are used instead of WhatsApp and Messenger. Weibo, a microblogging platform, is the closest thing to Twitter and has over 560 million Chinese users.

Unless you use a virtual private network (VPN) to mask internet traffic and location and circumvent web restrictions, Chinese have few options for social networking and access to content, and are strictly censored local alternatives. May turn to.

By Zen Soo

Associated Press