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Why US Big Tech is quitting China

Protocol | China

Good morning. In this week's Protocol | China: The great China exodus is on, driver's licenses go full QR, and Elon Musk selects his favorite ancient poem.

The Great China Exit

Yahoo announced Tuesday that it was leaving China, becoming the third U.S. tech company within weeks to have announced pullout plans from the People's Republic.

  • On Monday, Epic Games announced it would shutter Fortnite in China on Nov. 15.
  • Microsoft-owned LinkedIn announced in mid-October it would leave China later this year after seven years of trying and struggling in the country.

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

  • Yahoo cited an "increasingly challenging business and legal environment" for its withdrawal.
  • LinkedIn also acknowledged "a significantly more challenging operating environment and greater compliance requirements in China." (Well, it did in English; it didn't mention that in its announcement for its Chinese users.)
  • Epic Games did not specify why it was ending its 2-year-old partnership with Chinese gaming giant Tencent.

But the timing is intriguing. China's national privacy law, the Personal Information Protection Law, 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.
  • Violations are treated harshly, with possible mega-fines reaching up to 5% of a firm's revenue.
  • 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. In other words, compliance is no laughing matter.

Of course, this isn't just about one law. The broader political and regulatory environment is becoming more complex, dangerous and uncertain too.

  • The Party has made it clear it wants people spending less time online in general, with officials, including Xi Jinping, complaining about a loss of "core socialist values" and "effeminate" representations of men online.
  • Regulators are showing they're not afraid to flex their muscles, even against national champions like DiDi, which has seen no fewer than seven regulators sniffing around under the hood after its U.S. IPO debacle, or erstwhile business icons like the "capitalist running dog" Jack Ma.
  • Censorship requirements are becoming ever more onerous for social media and gaming companies, which have to face blowback in their home countries for the moral compromises they make.

Executives once had starry-eyed notions about the billions they'd mint in China's vast market, and felt it was worth whatever hits they'd take and whatever moral compromises they'd need to make. But as it's gotten harder to win and more costly to make those compromises, more and more big tech companies are having to rethink their China plays.

On Protocol | China

Flying cars are coming to China. Probably not soon. XPeng wants to get electronic vertical take-off and landing (eVTOL) vehicles into the skies by 2024. But to do that, it will have to run a gauntlet of regulators within the (traditionally slow, conservative) airline industry. Zeyi Yang has the story.

Beijing wants to make the internet less annoying. So the powerful Ministry of Industry and Information Technology announced Tuesday it's going to crack down on hard-to-close pop-up windows, throttled download speeds and other artifacts of the Chinese web that users hate. Zeyi Yang has the analysis.

Chinese web users mocked Facebook's rebranding. Meta's new logo looks familiar to Chinese web users, who have noticed a similarity between it and the logo of WeChat Channels, a short-video feature embedded within WeChat. Shen Lu has more.

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Big Brother Beijing

More rules for cross-border data flows. On Friday, China's Cyberspace Administration released new guidance on how Beijing will govern the outbound flow of personal data from the country. The latest draft policy requires any company with more than 1 million users in China to undergo a provincial-level security review before sending any user data abroad. In addition, if any company is sending the personal information of over 100,000 users or the "sensitive personal information" of over 10,000 users, it needs to go through a government-level review. The administration is seeking comments on the draft until Nov. 28. An English translation by Stanford's DigiChina can be found here.

Driver's licenses go full QR. In case people in China don't have enough QR codes in their lives, the Chinese Ministry of Public Security announced it would roll out a digital driver's license nationally by the end of 2021 that, yes, comes with another identifying QR code. So far, over 32 million drivers have applied for the digital document, which can only be accessed in the app published by the MPS.

China goes global

Beijing seeks more regional partnership for its digital economy. On Monday, China officially submitted an application to join the Digital Economy Partnership Agreement, a pact signed in June 2020 by New Zealand, Chile and Singapore that addresses issues brought about by digitalization. Xi Jinping announced the move in his speech during this year's G20 leaders' summit.

Another Chinese company sets up in Singapore. MiHoYo, the Chinese breakout indie game studio that has produced the globally successful game Genshin Impact, is setting up an international hub in Singapore, reports Chinese tech publication PingWest. The company is transferring some of its data and servers to Singapore and is on a hiring spree for local talent.

The cost of Trump's WeChat ban. Last year, then-President Trump ordered TikTok and WeChat to be banned in the U.S., an effort that never came to fruition. But a group of WeChat users who call themselves "the U.S. WeChat Users Alliance" persisted with a lawsuit and recently succeeded in securing $900,000 in compensation from the new U.S. administration, reports Pekingnology, a newsletter by Xinhua journalist Zichen Wang.

Straight from China's web

The most high-profile #MeToo accusation China's ever seen was censored within minutes. On Tuesday, Chinese tennis star Peng Shuai dropped explosive sexual assault allegations against former vice premier Zhang Gaoli on Weibo. Sure enough, her (unverified) post was almost immediately censored, as was public discussion of the bombshell case across social media platforms. Apps now also banned sharing of the screenshots of Peng's original Weibo post, according to Chinese web users.

ByteDance workers get shorter work days. A ByteDance spokesperson confirmed to Protocol that the company has begun to implement a work schedule that will strictly follow China's labor laws: Workers will get weekends off and get paid for overtime clocked after 7 p.m. on work days. This new policy makes ByteDance one of the first Chinese tech firms to adopt a regular work regime that complies with Chinese laws. It's a step forward to ensuring workers' work-life balance after the company canceled its "big/small" overtime policy in the summer, which mandated overtime every other week.

What do Gen Z workers want most from tech companies? Equality, according to a new report conducted by Maimai, a LinkedIn-like platform for Chinese tech workers.

On our radar

ByteDance's big reorg. TikTok's parent company ByteDance on Tuesday announced its first major reorganization under new CEO Liang Rubo. ByteDance will reorganize the company into six business units: TikTok, Douyin (TikTok's Chinese original), Dali Education (ed tech), Lark (an enterprise collaboration platform), Volcano Engine (cloud services) and Nuverse (gaming), according to Chinese financial publication Yicai. ByteDance's popular news aggregator Toutiao and video-sharing platform, Xigua, will be under Douyin. As part of its reorganization, TikTok's CEO Shou Zi Chew will step down from his other role as ByteDance CFO.

One more thing

Musk and the "bean" poem. Tech CEOs, Chinese or not, seem to like using metaphor-rich ancient Chinese poetry to express themselves on social media. On Tuesday, Tesla CEO Elon Musk posted on Twitter and Weibo a condensed version of the Seven Steps Verse, a classical Chinese poem allegorizing an acrimonious relationship between two brothers who were also political rivals. His post, titled Humankind, has baffled social media users and sparkled intense debates on what he might be pointing to. A hashtag on Weibo that attempts to interpret Musk has received over 3 million clicks.

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