August 10, 2022
Yahoo, LinkedIn, Fortnite: Why are foreign tech companies moving out of China?

Yahoo is abandoning the Chinese market, suspending its services as of Monday, in what is an “increasingly challenging” business and legal environment.

Foreign technology firms are pulling or shrinking their operations in mainland China as a strict data privacy law specifies how companies collect and store data.

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

Which foreign technology companies have recently reduced operations or left China?

Yahoo said in a statement on Tuesday that its services in China have ceased from November 1. Users visiting the Yahoo-run Engadget China site this week received a popup notice saying the site would not publish any new content.

Last month, Microsoft’s professional networking platform LinkedIn said it would shut down the Chinese version of its site this year and replace it with a job board without a social networking function.

Epic Games, which operates the popular video game Fortnite, also says it will take the game out of the China market by November 15. The game was launched in China through a partnership with China’s largest gaming company, Tencent, which holds a 40 percent stake in Epic.

Why are companies leaving China now?

The Personal Information Protection Act that went into effect on November 1 allows companies to collect the amount of information and sets standards for how it should be stored. Companies must obtain users’ consent to collect, use or share data and provide users with ways to opt out of data-sharing.

Companies must also obtain permission to send personal information of users abroad.

The new law raises the cost of compliance and increases uncertainty for Western companies operating in China. Companies that violate the rules can be fined 50 million CNY (approximately Rs 58.17 crore) or up to 5 percent of their annual revenue.

Chinese regulators are cracking down on technology companies, seeking to curb their influence and address complaints that some companies misuse data and engage in other tactics that hurt the interests of consumers.

The decline and departure also comes in the form of a confrontation between the US and China over technology and trade. Washington has banned telecommunications equipment giant Huawei and other Chinese tech companies, accusing them of having links with China’s military and government.

E-commerce companies like Alibaba are facing fines, due to which local companies are also feeling the heat. Regulators are investigating some companies and have imposed tough regulations that affect gaming firms such as NetEase and Tencent.

What other obstacles do foreign tech companies face in China?

China uses what is known as the “Great Firewall” laws and techniques to enforce censorship.

Content and keywords deemed politically sensitive or inappropriate should be removed from the Internet. Companies should police their platforms, delete posts and make sensitive keywords unsearchable.

Western social media networks such as Facebook and Twitter have long been blocked by the Great Firewall and are generally not accessible to people in mainland China.

“China has established a very strict policy governing internet operators, telling them what to do and specifically what not to do,” said Francis Lun, CEO of GEO Securities Ltd in Hong Kong.

“I guess the question comes down to why bother (working as a foreign company in China) with such limited returns, and such huge liabilities,” he said.

Michael Norris, a research strategy manager at Shanghai-based consultancy agency China, said compliance costs would increase further.

“Fortnite’s exit is particularly damaging, as it doesn’t even show a close partnership and investment business case with Tencent is close enough to work out,” he said.

Foreign tech companies operating in China also face pressure from their domestic markets. Some US lawmakers criticized LinkedIn’s censorship of US journalist profiles in China. In 2007, Yahoo was lambasted for handing over information about Chinese dissidents to the Chinese government, which eventually led to his imprisonment.

What does this mean for Internet users in China?

Chinese alternatives have popped up over the years to fill the void left by foreign social media platforms that have quit operating under the Great Firewall.

China’s most popular search engine is Baidu instead of Google. Messaging apps like WeChat are used instead of WhatsApp or Messenger. With over 560 million Chinese users, Weibo, a microblogging platform, is closest to Twitter.

Unless they use virtual private networks (VPNs) to hide their Internet traffic and location and bypass Web restrictions, the Chinese have fewer options for social networking and access to content and are strictly censored. Can turn to local alternatives made.

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