The “Great Firewall” limits international business

Are China’s strict Internet controls acting against its best interests? A survey released on Feb. 12 by the European Chamber of Commerce in China found that most businesses believe they are. Foreign companies that operate in China are frustrated by the fact that China blocks certain websites and restricts Internet access. Eighty-six percent of the companies, which are based in the European Union (EU) and operate in China, said that their business has been negatively affected by the blocking of websites in China.

China’s firewall program is called the Golden Shield Project, but it is better known by its nickname, the “Great Firewall.” The program was conceived by the government in 1998 and was put into practice in 2003. It was created to assist the Communist Party in keeping control over the Chinese people, and as such, it prevents people from going to certain websites. Today, it blocks access to several sites, most notably Facebook, Twitter and YouTube.

Recently, restrictions have become even tighter. Many people use virtual private networks, or VPNs, in order to circumnavigate the restraints of the firewall, especially to get access to Gmail. They had been able to gain access through third-party apps; however, in late 2014, the government blocked access to Gmail through these apps. Now, China is cracking down on the use of VPNs. All of these restrictions have also significantly slowed down Internet speeds in the country.

The Chinese government has also recently added new regulations that require foreign businesses to use secure IT services. Most foreign businesses are interpreting these new regulations as China wanting them to use IT services that the government can monitor. The American Chamber of Commerce in China and the U.S. Chamber of Commerce have written to the government protesting this law.

The European Chamber of Commerce in China has 1,800 members, and 106 companies responded to their survey. Eighty percent claimed that the tightening of restrictions in the end of 2014 and early 2015 have impacted their businesses negatively. Thirteen percent also said that they had deferred or completely decided not to invest in research and development in China. One respondent complained of wasted time trying to access email and book flights in China, while another stated that they felt that it was urgent that China address the situation with their Internet.

Last year, the European Chamber of Commerce in China released the Business Confidence Survey of 2014, which contains responses from 552 companies in the EU. The survey reports that many EU businesses feel pessimistic about doing business in China, as the challenges they face have not abated and, in fact, have just gotten worse in recent years. The survey claims that the Chinese economy has slowed down, labor costs have increased and foreign businesses face fierce competition from Chinese firms. These problems, combined with the problem of the Great Firewall, has led to an estimated €21.3 billion loss in revenue in 2013.

The businesses also reported that the ever-present smog in China has affected their business there. The pollution keeps non-Chinese business executives from wanting to move there, they stated. They also mentioned feeling less welcome than Chinese companies. Several claimed that they felt that the government singled them out for investigation.

The president of the European Chamber of Commerce in China, Jörg Wuttke, released a statement saying that the chamber is extremely concerned about the trend of increasing Internet control in China. He claimed that these restrictions will constrict China’s growth, prevent investment in research and development and prevent talented expatriate businesspeople from moving there. Wuttke also said that it is in China’s best interests to foster a better environment for foreign businesses and added that many Chinese businesses are just as frustrated as ones in the EU.

The American Chamber of Commerce in China also released a study on Feb. 11 showing that the same concerns are present amongst American businesses. Of the 477 firms that took the survey, 83 percent reported that they felt that Internet restrictions and slow Internet speeds harmed their business in China. Also, 53 percent of the businesses claimed that the smog made it hard to recruit people to move to China, while 47 percent felt that the Chinese government was not welcoming to foreign firms. Additionally, 57 percent felt that the Chinese government specifically targeted foreign firms for investigations on pricing, monopolies and corruption.

This survey was released at an interesting time, coming on the heels of news that the Chinese government was issuing a severe fine against an American company. On Feb. 9, U.S. company Qualcomm was fined $975 million by China in an anti-monopoly case. In a 16-month long investigation, the National Development and Reform Commission (NRDC) accused Qualcomm of abusing its patents. Chinese phone manufacturers and service providers needed some 3G and 4G patents from Qualcomm, and the NRDC has accused Qualcomm of bundling unnecessary patents with the necessary ones so that companies have to pay it more. This violates China’s antitrust laws.

The fine is the largest one issued in Chinese history so far, but the NRDC has said that in 2015, it will come down even more fiercely on businesses that violate antitrust laws. Qualcomm will not appeal the fine, as it is part of an agreement they reached with the NRDC in order to stop the investigation.