On June 12, 1987, President Ronald Reagan issued a challenge to his Soviet Union counterpart, Mikhail Gorbachev. “If you seek prosperity for the Soviet Union and eastern Europe, if you seek liberalization, come here to this gate, Mr. Gorbachev, open this gate. Mr. Gorbachev, tear down this wall!” Reagan was referring to the Berlin Wall, which separated West Berlin from East Berlin. This sound bite eventually led to the opening of the Berlin Wall in 1989, and its destruction shortly thereafter.
While not physical in nature, China’s strict censorship policies, often dubbed the “Great Firewall” in the tech community, is a troublesome barrier for the country’s tech firms. Chinese President Xi Jinping’s visit to America prompted questions from all around the tech community nearly thirty years later: when will the Great Firewall come down, and how much money is it costing tech firms?
Tech companies such as Google, Facebook, Twitter, Snapchat, Dropbox, Ustream and WordPress are all blocked in China. Coincidentally, the Los Angeles Times has reported that Apple has sold $13.2 billion worth of iPhones in the country last quarter, meaning that the opportunities for tech companies are ripe in the country. While there’s no definitive number on how much tech firms are losing out on by not being able to access the Chinese market, estimates put it in the billions of dollars. China currently has 668 million Internet users, and there are even guides on how to get around the Great Firewall. Many include the use of virtual private networks (VPN) or proxies to access blocked websites.
“I don’t think in general there’s that much awareness, at least outside of Silicon Valley, about the impact of some of the restrictions of the Great Firewall, and what the financial consequences are and what that might translate into for California,” Sacramento-based trade expert Jock O’Connell said. “How many jobs would there be for people in California were those restrictions removed?” he added, hinting that job opportunities would burgeon if the Chinese market were open to tech firms in the state.
Firms are hesitant to open in China because state regulations would force them to cooperate with Chinese authorities in regards to turning over user data and intellectual property to the state, as well as transfer their technology to local partners. Chip maker Qualcomm has already faced harsh fines in China, while Dell and Intel have partnered with local firms. Analysts said that partnering with local firms could weaken a company’s position not only in the Chinese market, but worldwide as well.
“They do it with a gun to their head. They say either you’re going to make these investments or you’re not going to get access to the market,” said Robert D. Atkinson, president of the Information Technology & Innovation Foundation. While tech firms are welcome in China, what they’re able to do effectively limits them from reaching their true potential. While tech companies largely have stayed quiet on the issue, some have spoken anonymously. One executive reported on the losses of not operating in the Chinese market. “I’m not sure we’ve added it up fully, because it would probably be too cruel,” they said.
Google, for example, held 36 percent of search advertising in China before being forced out of the country in 2010 over China’s strict censorship regulations. At the time, they were pulling in $300 million a year from the Chinese market alone. While Google still retains a presence in China, it is largely ceremonial, mostly selling ads to Chinese companies. Google currently retains 10 percent of the ad market but with access to China, they could have pulled an additional $3.5 billion, or five percent of its total revenue, from the Chinese market alone. Other problems include expatriates working in China who use Google products, foreign exchange students who learn from American educational institutes and the inability to use YouTube or the Google Play app store.
Other companies are also realizing how the Great Firewall is affecting business. Facebook, which generates roughly 16 percent of its revenue from Asia, could gain a 10 percent increase in yearly revenue if it had access to the Chinese market. “Once they’ve saturated the rest of the world, suddenly there’s a market of 1.3 billion, and they’re cut off from that,” O’Connell said. “It is likely to surface as a major financial and diplomatic issue between the U.S. and China,” he added.
Some have suggested that the United States are ready to get tough with China concerning the Great Firewall. “If you compare the U.S. tech company attitudes now to four years ago, it’s radically different. Four years ago they still drank the Kool-Aid that this was all going to work out. Now they don’t buy that anymore,” Atkinson said. Atkinson also stated that instead of mounting a case with the World Trade Organization (WTO), they should combat China’s “innovation mercantilism” and that the White House should create a National Industrial Intelligence Council, which would react to the economic policies of other countries.
Some courses of action could include curtailing scientific cooperation with China and even requiring Chinese companies such as Huawei, which licenses technology in the United States, to meet the same terms that American companies face in China. Others, however, said that those types of policies could force China to dig deeper and be even more rigid when it comes to foreign tech firms, instead allying with friendlier countries such as Japan and Germany.
Tech companies could benefit from a unified front. “When the tech companies band together and get U.S. Government support—and hopefully some foreign support too—the Chinese will be flexible if there’s enough pressure,” said James Lewis, director of the Strategic Technologies Program at the Center for Strategic and International Studies. Others have suggested using trade deals such as the Trans-Pacific Partnership (TPP)—which is already embroiled in controversy in the United States regarding several key issues such as the secrecy surrounding the deal, intellectual property, cost of medicine, income inequality and the environment—as a way of getting China on board.
“We have to arrange a grand bargain. We’ve done it before—on WTO. China is saying now they want into TPP,” said Hosuk Lee-Makiyama, a former trade negotiator for Sweden. “Compare China before and after WTO entry, and after, there’s a huge difference in terms of economic openness. You can’t even compare it. You’ve got to do a few deals like that. That’s how you get your economic objectives implemented,” he continued.
Will tech companies force China to tear down their Great Firewall? It would take a complete re-working of China-U.S. relations to achieve such a feat, and could involve government intervention as well, meaning a union of the tech sector and government would probably be needed in order to free 18% of the worldwide consumer market trapped behind the Great Firewall.