Yahoo and LinkedIn are the latest U.S. companies to throw in the towel amid China’s sweeping crackdown on private enterprise—with both announcing they are ending their services in the world’s most populous country.
While many believe Beijing has become a hostile market for American companies, most say they don’t intend to leave. However, recent exits pose questions about U.S. businesses in China.
“In recognition of the increasingly challenging business and legal environment in China, Yahoo’s suite of services will no longer be accessible from mainland China as of November 1,” the company said in a statement.
The news follows Microsoft-owned LinkedIn’s announcement in mid-October that it would close in China later this year, but open separate China-only job board. The Chinese version of the wildly popular online game Fortnite, “Fortress Night,” developed by Epic Games, will also shut down on Nov. 15.
Experts say that increasing geopolitical tensions between the U.S. and China, China’s tough “zero-COVID “policies that severely limit travel into the country, and rapidly shifting regulations on private enterprise have some corporations wondering if it’s too difficult to operate in China.
Here’s what to know about why some U.S. companies have wound down operations in China, and what’s to come for those still doing business there.
Why do companies leave China?
It has become increasingly clear that China has became a hostile environment for U.S. businesses, particularly in the technology sector, says Eswar Prasad, a professor of economics and trade policy at Cornell University and the former head of the International Monetary Fund’s China Division.
The Chinese government launched a crackdown on its tech companies about a year ago, which began when it torpedoed the planned record $37 billion public listing of Alibaba’s fintech arm, Ant Group. This sweeping regulatory crackdown grew to encompass entertainment, gaming, and private education. Beijing stated in September that online gaming could be limited to three hours per week for those under 18. South China Morning Post reported in early September that China’s regulators had also slowed approvals of new online games.
Learn More Here’s What the Crackdown on China’s Big Tech Firms Is Really About
Although Chinese tech giant Tencent, which operates Fortnite in China, didn’t give a reason for the shutdown, Daniel AhmadNiko Partners’ senior analyst for Asia and China, is. tweeted that the game was “never officially launched” by Beijing and was still pending regulatory approval.
LinkedIn said in an Oct. 14 blog post that it had faced a “significantly more challenging operating environment and greater compliance requirements.”
“Given this, we’ve made the decision to sunset the current localized version of LinkedIn, which is how people in China access LinkedIn’s global social media platform, later this year,” said the blog post.
The career networking site faced recent scrutiny for reportedly blocked the profiles of several U.S. journalists from the company’s China-based platform in September.
Yahoo’s withdrawal coincided with the Nov. 1 implementation of a strict privacy law that will curb data collection by tech companies—part of the broader crackdown by Beijing on big tech.
Learn More Why ‘Common Prosperity’ Has China’s Billionaires Running for Cover
Are other U.S. businesses leaving China?
Still, the recent news may not signal an imminent flight of U.S. businesses from China, which is the world’s second largest economy and its most populous country.
In September, the American Chamber Commerce Shanghai (AmCham Shanghai), conducted a survey and found that almost 78% of the 338 respondents were either optimistic or somewhat optimistic regarding the 5-year business outlook. Over 70% said that they did not plan to relocate their supply chain out of China within the next three year.
But Ker Gibbs, president of the AmCham Shanghai said that regulatory changes enacted after the survey closed had “unsettled” companies. “To continue attracting U.S. businesses and investment, China must endeavor to create a stable business environment,” he said.
Industries other than gaming and tech may be increasing their China operations. Many financial institutions seem to be increasing their China operations. In August, BlackRock, the world’s largest asset manager, got approval from regulators to start a mutual-fund business in China. Banks like J.P. Morgan and Goldman Sachs have in recent years won approval to set up majority- or 100%-owned securities ventures—which normally house businesses including investment banking, equities and research—in the country.
Prasad, of Cornell, says that although China is still striving to convey the image of being welcoming to American businesses in some sectors, especially financial services, “the reality is that such businesses are facing harsher conditions on the ground, with tightening constraints of various sorts on their operations in China.”
Tsang from SOAS claims that more companies will likely leave China if their business environment continues its decline. “But we are some way from the point when most U.S. companies see no future for them in China,” he says.