Aerial photo of Wuhan, China
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Why Big Tech is leaving China

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Good morning! This Wednesday, tech companies are bailing out of China, Facebook drops its controversial facial recognition system, and Pornhub is getting booted from Roku.

China's face-off with Big Tech

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 (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.
  • 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 muscle, 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, who 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.

— David Wertime (email | twitter) and Shen Lu (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.

A MESSAGE FROM ALIBABA

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People are talking

Facebook's Nick Clegg says there's enough time to create protections in the metaverse:

  • "This time we can work with academics, we can work with lawmakers … to put the guard rails in place before the technology matures."

The shiba inu coin was supposed to be a joke, but the crypto community helped it get big, Makara CEO Jesse Proudman said:

  • "The more people that learn about it, the more people buy it, and the network effect holds. It's the perfect example of how reflexive these markets are."

It feels good to be back at Web Summit, says Aleksei Antonov, a chief product officer:

  • "I come here to get inspiration for the whole year."

Eric Schmidt is excited for the metaverse, but maybe not Facebook's version:

  • "I've been waiting for about 30 years … as to whether Facebook will build that, I don't know."

Making moves

Jeff Bezos will put $2 billion toward fighting deforestation. It's part of a larger fund he started last year that goes toward combating climate change.

Zillow is done buying houses. It's also laying off about a quarter of its staff. Zillow Offers accounted for more than two-thirds of the company's revenue, but was deemed too risky.

Liang Rubo is ByteDance's new chairman. He replaces Zhang Yiming, the company's co-founder who also stepped down as CEO earlier this year.

Jen Oneal is resigning as Blizzard's co-leader, just a few months after she started. Mike Ybarra will become the company's sole leader.

Joanne Bradford is joining Snapcommerce's board. Bradford leads Enkasa and has held leadership roles at companies like SoFi, Pinterest and Microsoft.

In other news

Facebook is quitting facial recognition. People will still be able to use the technology for some features that they have control over, like using it to get back into a locked account, but many other functionalities, such as automatic tagging, are going away.

Here's what happens when Facebook stops protecting users – on purpose. The company's "holdout experiments" have shown that Facebook's systems don't necessarily decrease the harm people experience on the platform.

Ex-Apple employee Janneke Parrish filed an NLRB charge, alleging that the company fired her to stop organization efforts. Parrish was an organizer of the #AppleToo movement where employees shared unpleasant workplace stories.

Wanna check out my PowerPoint deck in the metaverse? Microsoft is introducing a feature next year to its mixed-reality platform, Mesh, that allows people to use cartoon-like digital avatars in Teams.

The chip shortage is claiming more casualties. This time, Apple is moving iPad chips to iPhone production lines to help meet demand, and Nintendo is cutting back on Switch console production.

Tencent showed off its first chips. Like Apple, Google and seemingly everybody else, Tencent is investing in its own silicon as its ambitions continue to grow.

Pornhub is getting kicked off Roku in March. Adult channels have been operating on private channels that are supposed to be used for testing purposes, but Roku is now replacing private channels with a beta channel tool.

Tesla and Hertz aren't on the same page about their deal. Elon Musk said the companies haven't signed a deal yet, but Hertz clarified that Tesla has already begun delivering its cars to the company.

Anyone can be a Netflix gamer now. The company expanded its games to all markets, giving subscribers access to five titles including two games based on "Stranger Things."

SpaceX's broken toilet

Houston, SpaceX has a problem. A crew of four is getting ready to fly back to Earth from the International Space Station. But the team has an issue: The Dragon capsule it will use to make the journey has a leaky toilet.

It's unclear how long the team may have to go without a bathroom during the trip, but it doesn't sound pleasant. A NASA employee said the crew may need to concoct its own sort of diapers, or as he put it, "undergarments," for the trip back home.

A MESSAGE FROM ALIBABA

In China, brands & retailers are connecting with the world's most digitally savvy consumers. By partnering with Alibaba, businesses can develop immersive and entertaining shopping experiences to engage customers in overseas markets. As a result, thousands of U.S. businesses are finding success reaching over 900 million consumers on Alibaba's platforms.

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