In China, Must All Tech – And Payments – Be Local?

In politics, they say, everything is local. In China, the same rule seems to apply.

The Wall Street Journal reported Friday that in the face of ever more onerous cybersecurity rules in the mainland, a number of Western tech companies have opted to go the local route, with a focus on creating or boosting joint ventures or growing their sales through Chinese partnerships.

Apple, which had a taste of difficulty when its book and movie services were suspended in the country, then invested $1 billion last week in ride-hailing firm Didi Chuxing, which is China’s answer to Uber. HP sold a majority stake in its networking equipment operation to Tsinghua Unigroup, and looks to recoup lost sales in the region that way. And in the midst of antitrust investigations, Microsoft has, along with chip giant Qualcomm, set up Chinese joint venture entities with an eye on security regulations in China. Part of the key to making inroads in China, said The Journal, is the ability to tailor security, sourcing, hardware and software to local tastes and mandates.

And most importantly, the onus is on the Western firms to store all of their data within China.  They must also, said The Journal, acquiesce with security checks and adopt what has been deemed “secure and controllable” products that tend to be, as might be expected, technology that is Chinese in origin.

What might all this mean for payments companies? The use of mobile devices for payments in China is certainly a greenfield opportunity, one that is attracting, obviously, a neck and neck competition between Alipay and WeChat. For Apple and Samsung, jumping into the fray means doing battle on each other’s turf. Already, Alipay and other firms within China’s own homegrown internet banking and financial service realm have been building formidable customer bases. It’s not too late to get in, for Western firms, but the devil is in the details: What sorts of concessions must be made?

A letter that was drafted not long ago by a series of trade groups protesting data security rules may not do much to smooth any path in tech at large, in payments or other industries. But it is a public assertion that the playing field is not a level one. The letter, according to The Journal, has yet to receive any response from Chinese regulators.