US Tech Giants are Switching Plans for China

For years, the cyber restriction and regulation from government in China created one of the biggest barriers for US tech companies to expand and develop business in China. The only possible way for those international tech companies to take root in China is usually set in a joint venture business model with local companies. However, this joint venture business is switching since the western tech giants are losing control of the joint venture companies.

Less investment stake took and more corporation with the government is now the top strategy for those companies to thrive in the China’s market.

Last year, HP (NYSE: HPQ) sold 51% of its networking business to Tsinghua Unigroup which led to a 40% up of its valuation compared to 1% down in its previous year. Moreover, Microsoft Corp. (NASDAQ: MSFT), Qualcomm Inc. (NASDAQ: QCOM) and Cisco Systems Inc. (NASDAQ: CSCO) —which all have faced headwinds in China, including antitrust probes and espionage accusations—have formed new Chinese joint ventures in the past year tailored to meet Chinese security requirements. Newer companies such as Uber Technologies Co. have decided to enter China through purely Chinese ventures with all their data stored in the country.

Beijing has recently shifted to a softer sell. At a tech meeting last week in China’s south, Premier Li Keqiang reiterated that security rules apply equally to all companies registered in China and pledged “a more fair, transparent and predictable investment environment.”

In practice, China has shown little sign of letting up; earlier this year, it further tightened restrictions on online publishing by foreign companies. In April, Chinese regulators blocked Apple Inc.’s (NYSE: AAPL) iBook and iMovie services.

A slate of new cybersecurity laws require technology companies to store their data in China, submit to security checks and help the government with decryption if requested. Government agencies and key industries have been urged to adopt “secure and controllable” technologies, a term widely interpreted to mean Chinese products.

Foreign trade groups say China’s cybersecurity rules make it difficult to do business except through a Chinese company. More than 20 U.S. and international associations signed a letter to China’s insurance regulator on Wednesday to protest draft security rules with data provisions and other requirements for the sector that they said would be an obstacle to trade.

It is true that doing business in China is especially hard for those tech service companies where China’s government measures the security much more important than anything else. Complying with the rules and law of the government and build more relationship with local partners are especially necessary for tech giants to seek a new growing point in China. Switching the plan is definitely not a bad decision under this circumstance.

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