China’s tech market has all the makings of a dream for American companies: it’s huge and growing fast, it’s relatively untapped, and it can be enormously profitable if approached correctly. It also has all the makings of a nightmare: changes are lighting fast, it’s heavily regulated, and entering the market can require companies to compromise their ethical values and participate in censorship and even become complicit in human rights abuses.
A new report from SecDev, a Canadian analytics group, attempts to make sense of this and asks the question: how should American companies — and American legislators — deal with the restrictions and complications that often come with doing business in China?
Google’s pullout from China on ethical grounds — the company stated it was no longer willing to censor search results, but the Chinese government requires all domestic search operators to censor — is by far the highest-profile example, but the SecDev report contains several other case studies:
- Yahoo was one of the first American companies to enter China, but it’s faced criticism for its complicity with Chinese censorship and surveillance. In particular, the company voluntarily surrendered records of the private emails of dissidents to the government in 2005. These emails led to the arrest of several critics of the regime, most notably the editor and poet Shi Tao. That, in turn, led to Yahoo execs being called ‘moral pygmies’ on the floor of the Congress in hearings about their handling of the incident.
- Microsoft also got into China early, and has also participated in censorship by deleting blog posts connected to its MSN service at the request of government censors. Criticism led Microsoft to change this policy — it now censors blogs only after receiving legal documents requiring them to do so, and “deleted” blogs remain accessible outside China — but there are also concerns about the censorship practices of Chinese companies like Renren and Baidu, both of whom Microsoft has partnerships with.
- Skype’s China version, TOM-Skype, included keyword filtration software that blocked sending messages with banned keywords [we won't mention which here since we don't want this site to get blocked, either]. A 2008 investigation revealed that chats with banned keywords had been logged in their entirety and uploaded to public servers, along with user information details like IP address.
- Cisco has been selling hardware to the Chinese government for over a decade. Most recently, it was reported that Cisco had won a contract that would have them helping to implement the new, half-million camera security system planned in Chongqing as part of the “Peaceful Chongqing” project. Reports suggest they have even specifically tailored products to the Chinese government’s specifications and in some instances offered them special pricing.
There are, of course, other problems. Reading the report, we were reminded of Apple, which has been massively successful in China but has also been dogged with reports that its factories here are bad for the environment and that work conditions in its plants are horrible.
Perhaps the PR nightmare overseas is just part of the cost of doing business in China. But as we saw yesterday, American investors in China face a tech landscape where the laws and regulations vary from draconian to decidedly opaque, and the future of this sector is even more uncertain. Moreover, no company wants to be party to or assist in human rights abuses. So what’s an American company to do?
The SecDev report acknowledges that it’s a difficult question, balancing as it must public and private interests, but they do offer a few broad suggestions. The American government, the report suggests, should implement regulations that require American companies to adhere to certain standards in their operations overseas. Companies should also control their own behavior better and recognize that while China presents a huge opportunity, entering it heedlessly without giving a second thought to the ethical implications of participating in China’s crackdowns has damaged the reputations of some of the world’s biggest companies. Finally, SecDev argues that the “commons” of the internet needs to be preserved, and that American companies should not contribute to the segregation of China’s internet by participating in policies that turn it into an intranet (which it basically already is).
It’s important to note here that SecDev’s recommendations do not go so far as to suggest attempting to change Chinese laws and regulations:
This does not mean continually forcing the imposition of values: it is unrealistic and not the place of the U.S. or any other country to directly force changes in Chinese law. It means ensuring that [American] corporations operate within sensible boundaries.
Google aside, it seems most companies aren’t willing or able to set such boundaries for themselves. But could — or should — US legislators do any better? What responsibility to tech and internet companies have when it comes to enforcing local policies that conflict with their corporate values, or the values of the nation in which they operate? These are huge questions, and no one really has the answers yet.
But, if nothing else, it’s good that these issues are being raised and that American companies are being held in the spotlight for what they do in China. China’s tech market is a land of opportunity, but along with such great opportunity comes massive pitfalls, both financial and ethical. Foreign companies need to be aware of this, and whatever decisions they make should be made with the notion that people worldwide are going to see and judge their company based on its actions here.
[SecDev via @niubi]