Can you imagine a world without Google, Twitter, Instagram or Facebook?Â
That's the world that the Chinese citizens live in. And now they have to bid adieu to LinkedIn, Yahoo and Fortnite as well. What’s going on?
Last month, LinkedIn announced that it will be shutting shop in China due to a "challenging" business environment. It was the only major US-based social media network operating in the country. And recently, Yahoo has also given similar reasons for leaving China.Â
But what is particularly troubling is the exit of US-based Epic Games from the country. The company played it safe and launched Fortnite in partnership with a Chinese company, Tencent. Apparently, this partnership was also not enough to safeguard it from China's strict rules and regulations.
So, what are the challenges that these American businesses are facing in China?
The Chinese Curve-Balls
One of the biggest and the most immediate challenges faced by these companies is the Personal Information Protection Law, which went into effect on November 1. The law requires companies to take users' permission before storing their data and also includes other requirements about how this data should be gathered, stored, and sent abroad.
Well, that sounds like the correct thing to do, right? What is wrong with the government protecting its citizens?
It’s just that this protection will cost the companies a lot of money. For example, Apple's new data privacy rules cost social media firms nearly $10 billion! You see, data is the new oil. It not only helps these social media giants to send targeted ads to customers but also allows them to predict consumer behaviour and market trends.
But with China putting in curbs and restrictions to collect this data, companies will miss out on several opportunities.
And this was the final straw that broke these companies' backs. You see, these companies have had to deal with lots and lots of regulations while operating in China. They kept adjusting and enduring. But they could only do it for so long.
We know what you are thinking. What were these past regulatory ghosts?
China's Great Firewall
Everyone’s heard of the Great Wall of China. But the country is famous for yet another wall: The Great Firewall.Â
This firewall is a Chinese government initiative to control what citizens can and cannot see online. As a result, tech firms like Yahoo and Microsoft have to constantly monitor and police content on their sites, taking down anything which the Chinese government deems inappropriate. This could range from pictures of protest to adorable cartoons like Winnie the Pooh! Yes, Winnie the Pooh. We are not making this up. Sounds like too much effort?
Well, even then, the companies did this backbreaking work. All in the hope that one day, they will be able to reap the profits from the world's second-largest economy. But the Chinese government had other plans in mind.Â
With the introduction of new data privacy laws, all of these efforts turned futile. Enough was enough!
Complying with China's whims and demands has had consequences outside China. For instance, LinkedIn recently faced a lot of criticism for censoring the profile of some American journalists on its Chinese platform.
But that’s not all. Geopolitical tensions also have a major role to play in this exit. The US-China trade war has led the US to issue sanctions on many Chinese companies like Huawei (which the US claims is indirectly owned by the Chinese government). While China's new law isn't a tit for tat measure, who's to vouch for that? Many US companies fear that the country could introduce new laws in the future just to get back at the US.
And to top it all, China is not even sparing the homegrown companies. Many companies like Alibaba, Didi and the edtech sector have faced the wrath of the Chinese government, causing their valuations to plummet. But why is China being harsh with its own companies?
Well, China wanted to show its companies and their billionaire founders who's the real boss. The government felt that many Chinese companies were gaining too much autonomy and power. Some like Didi also had plans to list on the New York Stock Exchange. But China doesn't want these companies to list outside and share their valuable repository of data with other countries. So, it initiated a clampdown on tech companies that store this digital treasure.Â
This regulatory crackdown has changed the face of corporate China and made many US-based companies wary of operating in the country. Who knows what regulatory bomb the government will drop next?
But "risk hai to ishq hai" (risks are what make life interesting).Â
So, according to a survey, around 77.9% of US firms operating in China still feel optimistic about their chances and are not planning on leaving the country any time soon. Who’s to say whether it is thrill-seeking tendencies or sunk-cost fallacy?
Food for thought: While there are regulatory concerns, do the Chinese even need US companies? Super-apps like Baidu and WeChat fulfill all the needs of Chinese users. This in itself is a big threat for US companies.
Interestingly enough, as US tech firms are retreating from China, finance companies are just finding their way to the country. BlackRock received approval in August to start a mutual fund business in the country. Banks like JP Morgan and Goldman Sachs have also recently got approval to set up majority security ventures in China.
If China wants foreign firms to continue operating in the country, it will have to give them some leeway and create a more stable business environment for them.Â
But will China, which is hell-bent on increasing control over its companies and citizens, do so? What does the future hold for businesses in China?
Only time will tell.
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