Exodus of Foreign Internet Giants Strengthens China’s Homegrown Ecosystem

China now depends almost entirely on its own online content providers, as the number of big foreign companies in the market, such as Yahoo and LinkedIn, keeps dwindling, giving the government a boost in controlling the internet, analysts say.

On Monday the Silicon Valley internet service provider Yahoo closed all of its services in China, following LinkedIn’s pullout announcement in October and earlier blockages of Google content.

In an e-mailed statement, Yahoo cited an “increasingly challenging business and legal environment in China.” Many Yahoo services were largely blocked in China, where the email and search engine provider has operated since 1999.

“My first reaction was, I didn’t know Yahoo was still alive in China,” said Danny Levinson, Beijing-based head of technology at the seed investment firm Matoka Capital.

Domestic services flourish

Chinese netizens seldom use Yahoo or other major Silicon Valley internet services, especially for media and communications, as domestic rivals have flourished over the past two decades. The government can handily monitor local providers for what it considers subversive content by calling in company managers for discipline.

Chinese use China-based WeChat for the bulk of their daily communication, watch TikTok videos instead of YouTube and check China’s Baidu.com rather than Wikipedia. Alibaba, headquartered in Hangzhou, takes care of e-commerce, although foreign rivals can still get into China given their trade’s lack of political sensitivity.

“They had all the ingredients in place,” said Kaiser Kuo, a U.S.-based podcaster who has worked in Chinese tech. “You had a really large, very fast-growing market. There was a need for people to come in with services that were catered to Chinese language users and Chinese tastes. On top of that, it was so cutthroat that foreign internet companies just couldn’t compete very well.”

The roughly 1 billion Chinese who use the internet have spawned an industry with an operating revenue of about $155 billion in the first 11 months of 2019, up 22.4% over the same months of 2018, according to Caixin Globa, a Chinese economic news-focused website.

Chinese mass media have said the country aims to become technologically self-sufficient by 2030 and get around U.S. government bans on doing business with some of its flagship companies.

Chinese netizens contacted this week say they’re unfazed by Yahoo’s withdrawal. Many Chinese have never visited Yahoo’s homepage, one veteran Beijing internet user said.

Laws discourage foreign providers

China has monitored the internet for two decades, by blocking websites and filtering social feeds, to intercept anti-government material. Its latest effort, the Data Security Law, restricts outflows of sensitive data from China and requires internet operators to give their internal data to law enforcement agencies.

Getting around that law can be costly and upset users outside China who oppose censorship, some analysts say.

“If there was a platform that was willing to go into China and completely cede control to the Chinese government and regulators to manage that, I think there would be an opportunity to grow, but so far most companies have chosen not to,” said Zennon Kapron, director of the finance industry research firm Kapronasia.

China previously blocked Facebook, Google and most other global social media sites and search engines as well as flagship Western news websites. Foreign media content providers “haven’t been really there for a long time in force,” said Ma Rui, founder of the San Francisco-based consultancy Tech Buzz China.

Users in China can still access foreign internet content by using a virtual private network, but authorities search out and block overseas-based VPNs that are not authorized for specific companies doing business in China. The “efficacy” of VPNs to stop filtering or blocking of content has declined over the years, Levinson said.

Emailing can still take care of Chinese people’s overseas business matters, Ma said, while foreign companies active in China normally use WeChat. China, however, does not allow end-to-end encrypted e-mail or chats.

“The email gets through, but based on the originating DNS [domain name system], it might get blocked, and it might get filtered. So it’s not a 100 percent panacea, but for normal business communication it’ll be fine,” Levinson said.

China’s constitution affords its citizens freedom of speech and press, but authorities target web content that the government believes will expose state secrets or might endanger the country, according to the Council on Foreign Relations, a research group.
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