Xi’s Crackdown, Rigid Regime Defeat Last U.S. Social Media Giant

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(Bloomberg) -- For years, LinkedIn thrived in China on the unlikeliest of compacts, complying deftly with Beijing’s ever-changing censorship demands while largely averting a backlash back home. That all ended Thursday, when the Microsoft Corp. unit began its withdrawal from the country, defeated by increasingly bewildering regulations governing data and content.

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LinkedIn’s defeat marked the demise of the last major U.S. social network in the country, one that some 52 million professionals relied on to grease deals, meet new prospects and forge alliances. The company, which blamed a more challenging operating environment and greater compliance requirements, said it will run a jobs service instead.

The decision triggered plenty of debate online about the real motivations, but LinkedIn’s withdrawal stemmed from several factors, not necessarily all political, observers say. A growing thicket of overlapping rules and regulations may simply have made the burden of policing and managing online information increasingly untenable for internet firms. Under Xi Jinping, China’s regulators have steadily clamped down on the once relatively untethered internet field, forcing foreign operators like Apple Inc. to store data with local state-backed firms and dismantling digital walls around platforms like WeChat that stifle competition.

In parallel, Beijing is looking to gain tighter control of the troves of personal data held by the leading platforms, saying that’s necessary to enhance national security and ensure the long-term stability of the country’s digital economy.

“The firm’s decision to shut down LinkedIn China highlights the increasingly tough regulatory environment for tech companies in China,” said Rich Bishop, chief executive officer of AppInChina, a publisher of international apps in the Chinese market. “It also shows the urgent need for international companies in China to ensure that they are operating in full compliance with Chinese law.”

Read more: Apple’s China Balancing Act Gets Harder During Xi Crackdown

Xi has over the past year launched a broad offensive against Big Tech, focusing on eradicating monopolies, urging private firms to share the wealth and molding a generation of productive youths by curbing online gaming and after-school tutoring. Some of those regulations are clear-cut -- such as edicts against making profits schooling minors.

Others, including those targeting data, are more amorphous and open to interpretation. Chinese regulators are seeking to implement far-reaching rules about the algorithms technology companies use to recommend videos and other content, claiming authority over internet services that governments like the U.S. have struggled to regulate.

That would directly affect companies including ByteDance Ltd., Tencent Holdings Ltd. -- and LinkedIn. The rules forbid practices that “encourage addiction or high consumption” as well as any activities that endanger national security or disrupt social and economic order.

“New rules around algorithmic content displays may mean additional feed moderation, making the feature a heavier burden,” said Michael Norris, an analyst with Shanghai-based consultancy AgencyChina, “Indeed, it’s that very content feed which is the source of LinkedIn’s challenging operating environment.”

Two pieces of regulation -- the Data Security Law and Personal Information Protection Law -- will further complicate things by imposing stringent restrictions on the handling of user data and shift the onus of ensuring privacy onto platform operators.

Read more: China Takes Next Step in Taming Big Tech With Personal Data Law

There’s also more oversight of media and publishing in the country. Private capital faces more barriers to entering the nation’s news publishing industry, according to a proposed negative list for 2021 published last week by China’s top economic planner.

There were signs LinkedIn had run into problems. It suspended new signups in March. There had also been cases of the site removing user-generated content that appeared to be too sensitive for China.

AppInChina’s Bishop said the news raises the question of whether other Microsoft services such as Bing, Skype and Microsoft Teams will continue to be accessible to Chinese users in future.

“This is a window for me to see the world, and it has lots of great articles,” one user commented under LinkedIn China’s statement on the local Twitter-like service Weibo.

Carly Ramsey, a Shanghai-based director with international consulting firm Control Risks, said LinkedIn’s decision may have more to do with the U.S. rather than China.

“The LinkedIn China business is pretty small, and the company is facing increasing reputational risk outside of China because they are censoring accounts,” she said. “Why take a hit to your profitable, global business?”

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