Hong Kong Is the Latest Tripwire for Tech Firms in China

Over the previous decade, China has embraced US sports activities and high-tech merchandise like iPhones and Teslas, and US companies granted entry to China’s home market have benefited from an enormous and more and more rich set of customers. For US tech firms, the ties typically run deeper: They depend on China’s factories and provide chain and, more and more, its top-class analysis expertise, says Chris Meserole, a international coverage fellow and know-how knowledgeable on the Brookings Institution in Washington. “I don’t think the public is aware of just how fully intertwined our economies are,” he says.

“The Chinese government understands that it wields tremendous power over US businesses in exchange for access to the market.”

Samm Sacks, New America

Those ties are more and more strained as political and financial tensions ratchet up amid the continuing commerce warfare, and in response to politically charged flashpoints just like the Hong Kong protests. The manner Blizzard, the NBA, and Apple have capitulated to the Chinese authorities displays the financial actuality of at the moment’s relationship.

Meserole says US and Chinese firms are already on the lookout for methods to divest themselves from the opposite nation, by discovering different sources of producing or funding for instance. He believes the pattern will proceed. “To me the question isn’t ‘Will we see a decoupling?’” he says. “It is ‘At what scale will we decouple?’”

Disentangling US and Chinese pursuits might show painful for the companies concerned and for every nation’s economic system. NBA video games, for instance, are broadcast on Chinese state media CCTV, and the league has partnered with Chinese media firm Tencent to stream its video games within the nation—a $1.5 billion partnership that Tencent and CCTV suspended this week, prompting followers there to seek refunds.

For US game studios, which can’t operate in China without a government-granted license and often form joint ventures with Chinese companies, jeopardizing that license means jeopardizing an increasing swath of your bottom line. “More and more companies have grown dependent on China’s market size, which can easily account for half your game revenue,” Kern says. “That’s an inordinate amount of pressure.” The calculations are even more complex for Activision Blizzard: Asia accounted for 12 percent of the company’s revenue in the first half of the year; and Tencent holds a 5 percent stake in the company.

Each of this week’s disputes unfolded against the backdrop of the pro-democracy protests in Hong Kong. In addition to stamping out dissent, China also may want to signal its ability to hurt the US economically. “The Chinese government understands that it wields tremendous power over US businesses in exchange for access to the market,” says Samm Sacks, an expert on China’s digital economy at New America, a think tank.

With trade negotiations between the US and China resuming this week in Washington, including a scheduled meeting between President Trump and Chinese Vice Premier Liu He, such tension will make it more difficult for US companies to simply ignore politics in China. But Sacks says that with the two nations seemingly on course for greater conflict, it may be important to recognize the things they have in common. “There’s a lot of nationalist rhetoric on both sides of the Pacific right now,” she says. “But the reality is that a splintering of tech and culture would be incredibly disruptive, and even dangerous.”

For US consumers like Kern, the blowback is less a matter of nationalism than of principle. Citing two NBA fans who were ejected from a game in the US for chanting “Free Hong Kong,” he calls companies’ need to back away from China an “unethical dilemma.” “Either you start to censor your games, your players, your employees to Chinese standards,” he says, “or you don’t get investments, you don’t get access to half the market, and you can’t compete globally.”

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