regulation
China

What's behind the great China tech exit

Why are so many global U.S. companies leaving China? It's gotten harder than ever to comply with the law, and the penalties for failing to do so are steep.

A Chinese flag waving above a crowd

The string of departures from China underscores the grave challenges global tech companies face in China as the country's tech industry undergoes rapid regulatory shifts.

Photo: Guang Niu/Getty Images

Yahoo announced Tuesday that it was leaving China, becoming the third U.S. tech company within just weeks to have announced pullout plans from the People's Republic. Yahoo's move followed Epic Games' Monday announcement that it is shuttering Fortnite in China on Nov. 15 and Microsoft-owned LinkedIn's mid-October exit declaration.

The string of tech companies' departures from China underscores the grave challenges global firms face in China as the country's tech industry undergoes rapid regulatory shifts. Yahoo cited an "increasingly challenging business and legal environment" as the reason for its withdrawal. LinkedIn also acknowledged "a significantly more challenging operating environment and greater compliance requirements in China." Epic Games did not specify why it was ending its two-year-old partnership with Chinese gaming giant Tencent.

A variety of factors might have prompted these transnational companies to exit the lucrative China market, but the timing is intriguing: China's national privacy law, the Personal Information Protection Law (PIPL), went into effect this Monday. The law provides comprehensive data protection for consumers and requires additional compliance from tech companies — Chinese and non-Chinese — that process consumer data in China. And the law's approach to data transfer is more heavy handed than the European Union's General Data Protection Regulation, from which the PIPL drew inspiration.

"Transnational technology companies or businesses similar to LinkedIn and Yahoo face strict regulations (on reporting, access, etc.) under Chinese law while PIPL adds an additional layer of complexity to data protection," JoHannah Harrington, chief legal officer of Elements Global Services, a HR technology and services company that focuses on global business strategies, told Protocol.

On the gaming front, China's National Press and Publication Administration handed down strict rules back in August stating gamers under 18 will only be allowed to play games for up to three hours a week — specifically, between 8 p.m. and 9 p.m. on Friday, Saturday and Sunday. This rule came down after the recent revisions to China's Minors Protection Law became effective in June, and they synchronized with other rules aimed at preventing Chinese youth's internet addiction.

More broadly, Beijing has made good on its promise to rein in the tech industry this year, launching strikes against tech titans like Alibaba, DiDi and Meituan to tackle problems including unfair competition, lax cybersecurity and privacy protection.

China's homegrown tech heavyweights are facing the same legal and regulatory compliance issues. But they are addressing those challenges in ways far different than shutting down their businesses or exiting the country. Instead, Chinese tech companies have by and large been compliant, racing to implement data localization and censorship rules and to parrot the latest Party agenda: common prosperity.

Shen Lu

Shen Lu is a former Protocol reporter, covering China's tech industry.

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