Silicon Hutong

China and the World of Business • China Business and the World

Silicon Hutong - China and the World of Business • China Business and the World

The Business of China is NOT Business

In the Hutong
Bandwidth-starved
0842 hrs.

Last week I had a chance to talk with Carlos Tejada at The Wall Street Journal about how Google services have become all-but-inaccessible for users in many parts of China, and how this all seems to have gotten worse over the last several weeks. What is worse, access to virtual private networks (VPNs,) most of which require offshore payment to access and upon which many business are dependent, has been all but severed.

The Hobbled Headquarters

I made the point to Carlos that there are a growing number of businesses who depend on cloud access – not just foreign firms, but organizations based in China who actively collaborate with groups overseas to conduct research and development as well as commerce. To these companies, access constriction is a man-made disaster that is in some aspects worse than a natural one: at least with natural disasters, even one like Superstorm Sandy, there are ways to fix or work around problems of data disruption. With access constriction like this imposed by an unaccountable, unseen human entity, there is no telling when it will end, and the work-arounds are cut off as well.

The longer this goes, the more it will force businesses to re-examine the wisdom of locating headquarters or back-office operations in China:

“If China insists in the medium and long term of creating another Great Firewall between the China cloud and the rest of the world, China will be an increasingly untenable place to do business.”

Anyone who wants to do business in China is well-advised to have a presence here. But China has long made it a goal to get foreign companies to locate their Asia-Pacific headquarters in places like Shanghai and Beijing rather than, say, Hong Kong and Singapore. How many companies are likely to consider that option with a sword of Damocles hovering over their links to data and the outside world?

A Lesson in Chinese Political Economy

There is a wider issue here than just the risk and inconvenience of having to do international business through an increasingly impermeable data force-field. The past two weeks have been a rude reminder that the government and the Party place social stability and continued Party control far above commerce; that they see commerce as serving the interests of the government and the Party rather than the other way around; and that the implicit conflict between the interests of the Party and the interests of business (especially SMBs and foreign-invested businesses) are more fundamental and closer to the surface than we might wish to think.

Let us not kid ourselves, then, and suggest that when you scratch a Chinese official you will find a capitalist not far under his Communist skin. There will ever be opportunists in positions of power, but in the end all business in China remains subject to the whim of the central government’s leadership. Thirty-five years after Deng Xiaoping declared China’s reforming and opening to the outside world, political risk for every company operating in the PRC remains as real and immediate as ever.

And it shouldn’t take an internet outage to remind us of that fact.

 

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