In recent years, several large U.S. companies have left China in search of better conditions. Prolonged shutdowns due to Covid-19, cost increases, intense regulatory repression, strict controls by the Chinese Communist Party (CCP), and imposed laws limiting data sharing and on the privacy of customers on the networks, are some of the causes.
In this context, Amazon announced on June 3 through its Weibo account that its Kindle business will cease to operate in China on June 30, 2023, and that its Chinese customers will no longer be able to access its e-books. Also, they will only be able to download books until June 30, 2024.
While Amazon in 2019 had shut down its e-commerce in China, the Chinese internet regime’s stringent controls and new laws on data sharing and alleged customer privacy caused Kindle to pull out for good, according to Fox Business.
Similarly, on May 24, Airbnb ( ABNB ) said it would stop investing in the Asian country and focus on Chinese travelers abroad due to worsening costs in China under Covid-19.
In 2021, Microsoft-owned LinkedIn also said it would pull out of China after acknowledging it faced a “significantly more challenging operating environment and greater compliance requirements in China,” said LinkedIn spokesman Mohak Shroff, according to CNN.
The website had to suspend new user registrations in China to “ensure we remain in compliance with local law,” Shroff said.
In 2021, Yahoo also pulled out of China and acknowledged that it was difficult to stay in business as it was an extremely “challenging” environment.
Yahoo’s withdrawal coincides with a new CCP law on so-called consumer protection that restricts the type of information technology companies can collect from users and how they should store it, Breitbart reported.
“While China represents a fast-growing and lucrative market, the cost-benefit calculus has become unfavorable for American businesses operating in sectors that Beijing is cracking down on and asserting more direct control over,” Eswar Prasad told Time. Prasad is a professor of economics and trade policy at Cornell University and former head of the International Monetary Fund’s China Division,
The CCP passed new rules and laws that more strictly regulate technology companies by setting out how they should collect, store and share user data, such as the so-called Personal Information Protection Law and the Data Security Law. Since then, several companies have been investigated for allegedly misusing personal information, Freedom House reported.
The new restrictions affect both users and companies, as the provisions also include deleting accounts that expose prohibited topics. In this way, companies are losing prestige, and by deleting accounts, they also decrease their number of users.
The Cyberspace Administration of China (CAC), the CCP’s Central Commission for Cyberspace Affairs, regulates and controls Internet content.
In March 2021, the CAC reportedly ordered LinkedIn to suspend new user registration for 30 days and undergo a self-assessment for not censoring enough content in March this year. However, the company stated on March 9 that it will “work to ensure we remain in compliance with local law.”
The Personal Information Protection Law, which went into effect on Nov. 1, 2021, also stipulates that Chinese citizens’ data cannot be transferred to other countries. Again, this is a rule that may present problems for foreign companies, Breitbart reported.
Companies that fail to comply will be severely penalized with fines of $7.6 million (50 million yuan) or 5% of their annual turnover.
The provision generated controversy because it states that confidential data has to be protected by the CCP to not give rise to “discrimination … or seriously threaten the safety of individuals” based on race, ethnicity, religion, biometric data, or a person’s whereabouts.
However, it is contradictory to the current situation in China, whereby its citizens are being targeted by hundreds of CCP surveillance cameras distributed throughout the cities, some equipped with facial recognition, which collects biometric information daily.
This situation is the case in Xinjiang, where the CCP exercises strict controls on the Uyghur ethnic minority, who are forced to install software on their cell phones, allowing the police to access their location, photos, or text messages.
Pandemic another CCP pressure factor
The closures and lockdowns due to Covid were other factors pressuring foreign companies in China to give up business in the Asian country. However, Voa News reported the slowing economy and high costs were already reasons enough.
“Business in some cases has come to a complete stop,” said Doug Barry, vice president of communications for the U.S. Business Council. “The risk seems to be increasing, and the unknowns are also increasing, and you’re looking at bottom lines and the future of things, and you’re wondering what to do.” he added.
Covid restrictions have slowed freight across China, and many factories in the Shanghai region are operating with limited or no production. In addition, CNBC reported that foreign executives are finding it difficult to travel to China due to the CCP’s Zero-Covid policy, which requires a two to three-week quarantine.
A survey by the European Union Chamber of Commerce in China showed that a quarter of 372 respondents said in late April that they were considering changing their current investments or planning to take them to other markets.
“What our survey is indicating is there will be less investment into China and more investment into Southeast Asia,” said Joerg Wuttke, president of the EU Chamber of Commerce in China.
Many companies are mulling over bringing their investments, for example, to Vietnam. “Vietnam has emerged as a very key supply chain node for consumer electronics,” said Vishrut Rana, Singapore-based economist at S&P Global Ratings.