Businesses Lose to China's 'Great Firewall'

The US-China trade war is escalating into cyberspace, and the casualties include both businesses and consumers.

Several reports today, including one from Reuters, say that China's policy of blocking access to certain Websites is hurting foreign businesses:

The U.S. Ambassador to the World Trade Organization, Michael Punke, said in a letter to his Chinese counterpart on Monday that some companies based outside China had faced "challenges offering their services to Chinese customers" when their websites were blocked by China's "national firewall."

Specifically, the Reuters article said, US businesses were having a hard time offering their products and services to China via the Internet.

The inconsistency of China's trade practices has been debated a number of times on EBN. For example, many of the people who assemble products such as smartphones can't fully use them, because of China's Internet access policies. (See: Made in, But Can't Be Used in, China.)

Up until now, the China firewall debate has focused more on freedom of information and freedom of speech. But if companies are losing revenue from the world's largest consumer market, the stakes are getting higher. In fact, Consumer Reports reported today that online consumer electronics sales are soaring. According to a press release from the magazine:

Online shopping scored higher in almost every respect than did shopping at walk-in stores in Consumer Reports' Annual Electronics Buying Survey. Respondents made 34 percent of electronics purchases online, which is more than double the percentage from just five years ago.
"Our survey shows that consumers are getting more and more comfortable making electronics purchases online -- even big-ticket items like TVs," said Paul Reynolds, electronics editor at Consumer Reports.

Given China's geographic size and the remoteness of some regions, online purchasing seems like an essential tool for many consumers. China reportedly has 450 million Internet users, but the government exercises tight control over Internet access. Reports say the Chinese government fears sites such as Facebook, Twitter, and YouTube can incite social instability and threaten national security. In this regard, the government has a point: The Internet has been a key part of the drama that is playing out in the Middle East as dictators are being displaced by citizen uprisings.

At the same time, China can learn a lesson from what's going on in the Middle East: No matter how tightly access is controlled, users will find a way to use the Internet.

Let's set aside that debate for the time being and focus on the supply chain. Components and subassemblies are shipped into China for products that are assembled there. Finished goods are shipped out for final assembly and distribution. China's own policy may be preventing the purchase of those same goods by Chinese consumers. Granted, many of those goods stay within China's borders for consumption in local markets. But just as many leave the country.

China's national firewall isn't just hurting foreign businesses. It's limiting its own market.