China's New VPN Clampdown Hurts Business, U.S. Group Says

  • Economic impact of internet restrictions rising, survey finds
  • China is said to order telcos to block individual VPN access

What Tighter Internet Rules Mean for Business in China

China’s clampdown on the use of virtual private networks to circumvent the country’s internet controls risks disrupting businesses that depend on them for cloud services and data security.

Besides using virtual private networks to gain access to websites like Facebook and Google blocked by China’s regulators, companies use VPNs to ensure speed and efficiency as they migrate more services to the cloud, and to ensure that data moving across those networks is secure, said Jake Parker, vice president of the U.S.-China Business Council.

Parker talks with Bloomberg TV.

Source: Bloomberg

China is said to have told telecommunications carriers to block individuals’ access to VPNs -- services that skirt censorship restrictions by routing web traffic abroad -- by Feb. 1. The apparent acceleration of a crackdown comes as Beijing prepares to host the 19th Communist Party Congress, a sensitive time during which leadership reshuffles are expected and the government tightens its grip over media.

Some businesses worry that the crackdown, which for now is said to target mainly individual users, could expand and end up hurting their operations. More than a fifth of foreign businesses responding to a European Chamber of Commerce survey conducted this year complained that existing internet restrictions affected more than a 10th of their in-country revenue.

“Any kind of restriction on VPNs operating in the China market would be a disruptive influence on businesses operating here,” Parker said in a Bloomberg Television interview with Haidi Lun. His organization represents and assists about 200 American companies from Intel Corp. to Microsoft Corp. “What we’re seeing is a focus on stability moving up into the 19th congress, which is likely one of the reasons why restricting internet access is something that’s going on now.”

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While VPNs are widely used by businesses and individuals to view banned websites, the technology operates in a legal gray area. The Ministry of Industry and Information Technology pledged in January to step up enforcement against unauthorized VPNs, and warned corporations to confine such services to internal use. At least one popular network operator said recently it had run afoul of the authorities: GreenVPN notified users it would halt service from July 1 after “receiving a notice from regulatory departments.” 

Companies operating on Chinese soil will still be able to employ leased lines to access the international web but must register their usage of such services for the record, people familiar with the matter have said. Yet quite apart from a wider crackdown on VPNs, foreign businesses have long complained about the damaging effects of unreliable internet access.

The business confidence survey published by the European Union Chamber of Commerce found that unstable connections, slow Internet speeds and restrictions on access have “seriously impacted” its members. About a quarter of respondents reported lower productivity, difficulties in exchanging data and documents with their headquarters, partners and customers, and the inability to properly search for information and engage in research, according to the survey.

In the 2017 survey, 22 percent of respondents estimate that the restrictions translated to economic impact of more than 10 percent of their annual revenue in China. In 2015, 16 percent of respondents felt so.

Many foreign firms now rely on VPNs to get through to common apps such as Google Docs that its employees in other countries use. In fact, they’ve been known to quicken connections to cloud-based software -- such as those deployed by Salesforce.com Inc. -- that aren’t expressly blocked in China, Parker said.

“For our companies, they used licensed VPN services to visit overseas websites. It is the only legal way in China,” said a spokeswoman for the European Chamber of Commerce in Beijing.

For all the inconvenience and added costs, there will still be avenues to circumvent China’s controls, according to consulting firm ECOVIS. And it remains unclear how the carriers will execute the directive to block personal VPN use.

“In the past, China has played a whack-a-mole game with these VPN services by restricting access to certain servers, but I don’t see how they could restrict them completely, given that they are not located in mainland China,” said Torsten Weller, a Beijing-based business development associate at ECOVIS who’s worked on domestic cybersecurity rules. “The restrictions might well intensify, but the only sure way to completely shut down VPN use would be a complete disconnect from the outside world.”

— With assistance by Kongho Chua, Yan Zhang, and Christina Larson

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