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China's crackdown spells trouble for U.S. businesses

As China's crackdown on businesses sounds alarm bells for C-suite executives, a U.S. district judge handed down a long-awaited verdict in the Apple vs. Epic Games trial.

As China ramps up regulatory crackdowns and targets major companies, C-suite executives face a tough choice when it comes to doing business in the country: stay and fortify security, or leave.

R "Ray" Wang, founder and principal analyst at Constellation Research, said China is a top concern for the C-suite as strategic planning for 2022 begins. Companies with operations in China will have to decide whether to remain, he said. If companies continue doing business in China, Wang said the focus should be on protecting data and IP, hardening privacy controls, establishing an exit plan for employees working in the country and preparing for risks like more regulatory action.

I think the biggest risk at this moment is you don't know what to expect from the government.
R 'Ray' WangFounder and principal analyst, Constellation Research

"I think the biggest risk at this moment is you don't know what to expect from the government," Wang said.

China's crackdown could affect U.S. businesses

Recently, the Chinese government launched investigations into domestic companies like ride-sharing company Didi over alleged national security concerns soon after the company was listed on the New York Stock Exchange. It also investigated e-commerce giant Alibaba over monopoly concerns.

Experts like Wang are concerned that China's movement against companies serves as a warning.

"The whole notion of Marxism is back," Wang said. "So you need to be prepared for those regulatory risks that are there, and you also need to be prepared for the fact that the Chinese government may ask you to do something that may not be in the interests of your government or your headquartered government."

Indeed, the U.S.-China Economic and Security Review Commission held a hearing Wednesday to discuss emerging risks with U.S.-China relations in 2021, something experts speaking at the hearing said companies should take into consideration.

Rebecca Fair, CEO and co-founder of Thresher, testified that the Chinese government is manipulating the landscape for businesses operating in China and in the U.S. Citing Didi, Fair said the Chinese government launched an investigation into the company days after it raised $4.4 billion in its U.S. IPO and flooded social media with propaganda about the investigation, allowing the spread of disinformation about Didi. Thresher is a Washington-based data analytics firm that analyzes Chinese language content.

"That disinformation claimed that in order to list on the New York Stock Exchange, Didi agreed to give the U.S. government access to its users' data," Fair said. "Didi leadership tried to publicly deny that disinformation, but the Chinese censored online content talking about Didi's denial. In this example, we see the trifecta of the Chinese government's manipulation toolkit: propaganda, disinformation and censorship."

Fair said these techniques enable the government to control the players in its economy, a "key element of its strategy to control the economy as a whole." The control techniques can be used not only against Chinese companies, but against U.S. companies as well, Fair said.

Also this week

  • U.S. District Judge Yvonne Gonzalez Rogers issued a long-awaited verdict in the trial between Apple and Epic Games. The verdict stops Apple from prohibiting app developers from including links within their apps directing customers to make purchases outside of the app. Both Apple and Google have faced growing scrutiny over requiring app developers to use the companies' respective payment mechanisms for in-app purchases and then charging high commission fees on those purchases. Apple and Google have already taken steps to appease developers, such as lowering commission fees and making changes to their app store practices.
  • Texas Governor Greg Abbott signed a bill into law that prevents social media companies from censoring political content users post on the platforms. In the press release, Abbott said "social media websites have become our modern-day public square. They are a place for healthy public debate where information should be able to flow freely -- but there is a dangerous movement by social media companies to silence conservative viewpoints and ideas." Similarly, Brazilian President Jair Bolsonaro on Monday blocked social media companies from censoring content.

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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