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DOING BUSINESS IN CHINA

Feared VPN Cut-Off Leaves Limited Options for Small Businesses

By Doug Young

The upcoming Year of the Dog isn’t exactly barking out a strong welcome for foreign firms in China. According to the latest edition of the annual “2018 China Business Climate Survey Report,” released by AmCham China last week, some 75% of respondents said they feel less welcome in China than in the past — not a very positive indicator for this key survey of foreign business sentiment.

We should be fair and point out the outlook was even worse in the previous two years, with 81% and 77% of respondents saying they felt less welcome in 2016 and 2015, respectively. But no matter how you slice it, three-quarters of respondents saying they feel less welcome in China doesn’t seem all that positive.

One reason for such pessimism might be the relative difficulty of getting information here. Along those lines, virtual private networks (VPNs), which allow people to use otherwise-inaccessible sites and services like Google and WhatsApp, was one subject that came up during the press conference to provide more color on the chamber’s latest survey results.

I’ve written about this topic before, but the reason for returning to it this week is the very real possibility that all offshore VPNs used by most small foreign businesses in China could soon become inoperable. The AmCham member who follows the issue, whose name I’ve elected to leave out due to the sensitivity of the matter, said current word on the street is that all such unauthorized offshore VPNs could be rendered impotent either at the end of February or March.

Of course no one is really sure, since there are never any official pronouncements about this kind of thing. The one thing we do know is that the government kicked off a campaign to clear the market of unauthorized VPN operators about a year ago, saying the “rectification” effort would run through March this year. It later said foreign firms using legal services need not fear being shut out, and in July Chinese media quoted the industry regulator specifically denying that individuals would be barred from using VPNs by this month.

At the same time, evidence of the cleanup was apparent during the summer, when one of the most popular VPNs used by local Chinese was abruptly shut down. Global tech giant Apple followed a short time later by removing about a dozen VPNs from its China app store, saying they had failed to obtain the proper licensing.

Calm before the storm?

The foreigners I talked to this week said their VPNs, nearly all based offshore and therefore almost certainly not licensed in China, continue to work normally. But as users of the popular WhatsApp instant messaging app discovered last fall when their service suddenly became inaccessible without a VPN, things here can change quickly with little or no warning. Further muddying the picture are temporary “outages” sometimes experienced by these services and websites around sensitive events and dates such as the annual National People’s Congress each March.

My AmCham contact gave his own interpretation that the latest developments in the VPN sphere appear to be a combination of Beijing trying to control information, along with the more commercial consideration of forcing foreigners to use the nation’s big three phone operators to maintain unfettered internet access. Those carriers all offer such service through something called international private leased circuits (IPLCs), which basically allow users to lease a line that gives them unrestricted access to sites and web-based services in one or more countries.

The only problem is that such circuits are quite expensive, especially if you’re a small business. My AmCham source said his company pays around $6,400 per month for its IPLC service, which may not seem like much for a big multinational but could be crippling for a smaller business with limited income and headcount. One of my other contacts, a small business owner, confirmed that he would never consider such an option.

I did my own online searching, and found that IPLC prices can be a bit more variable but are still quite high on the whole. A price list from a unit of China Telecom showed that a line can be leased to most countries for as little as about 30,000 yuan ($4,761) a month, which is still quite pricey. That figure also assumes you’d be content with molasses-like connection speeds not seen since the early days of the internet, in this case just 64 kilobits per second.

Anyone wanting a more normal speed of, say, 1 megabit per second (Mbps), should be prepared to pay even more, to the tune of 85,000 yuan to 100,000 yuan per month for 1 Mbps to 1.5 Mbps. Clearly this kind of sum isn’t going to work for many small businesses, which could be worrisome if unauthorized offshore VPNs, which typically cost around $5 to $10 a month, really do stop working.

One of my Hong Kong-based sources pointed out a possible work-around could be getting a dual-use SIM card from Hong Kong, which includes a local Hong Kong number and also one in China. Such accounts allow for unfettered web access even in China, and cost about HK$100 ($13) for every gigabit (Gb) of data used. It’s not exactly cheap and slightly inconvenient to sign up for, but still far less than any of the IPLC plans.

Another option is to set up your own private VPN, which can basically be done using any computer that’s always turned on and connected to the internet in an offshore location. This could be a good alternative for small companies with an offshore office, or anyone who doesn’t mind bothering a friend and getting someone tech-savvy to set it up. At the end of the day, none of these options is exactly ideal, and most people are obviously hoping their current VPNs continue working into the indefinite future. But if there’s anything that people doing business in China have come to learn over the years, it’s to always be prepared for the unexpected.

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com

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