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The Very Distinct Regulatory Environment in China

By Motley Fool Staff - Feb 5, 2018 at 8:30AM

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The laws and regulations in China can prove difficult to navigate for U.S. companies.

On this episode of Industry Focus: Technology, host Dylan Lewis is joined by contributor Danny Vena to discuss some of the specific rules and regulations imposed on internet companies in China.

A full transcript follows the video.

This video was recorded on Jan. 26, 2018.

Dylan Lewis: What exactly are those laws and regulations?

Danny Vena: I have a list of them here. Some of them are pretty interesting. First of all, you know how there's a lot of anonymity on the internet? You can create a fake Facebook account; you don't need to use your real name on Twitter. That's not the case in China. In China, you have to sign up with your real name and provide verification of your identity in order to use social media sites. Similarly, with news programs that are on the internet, they're required to have editorial staff that have been pre-approved by government officials. Any time that there's an internet company in the country, they're required to first have their data servers on the ground in China. And in addition to that, they're required to keep all of the information gathered about Chinese citizens, that has to remain in the country, and they have to specifically ask for permission to transmit any of that information out of China. When we're talking about streaming companies -- and streaming is huge, you may recall that late in 2016, Netflix bowed out of its intentions to enter the Chinese market. And one of the reasons they cited was the government regulatory environment.

Lewis: What specifically about that is relevant to them, Danny?

Vena: Streaming companies are required to have no more than 30% of their content be from foreign sources. Again, the other same requirements, they have to keep the data in the country, a set of items that I just cited. But that's kind of tough for a company like Netflix, where if they're limited to 30% of their content being from foreign sources. That's not going to give them a lot of entry into that market.

Lewis: No, especially for a company that's focusing so much on original content, right?

Vena: Absolutely. And a couple of other items. The Chinese government has banned the use of VPNs, which is a virtual private network, something that internet users favored for getting around the Great Firewall, which was the things that the Chinese government used, essentially, to keep out foreign content. And finally, the companies in China that accept money from advertisers are required to verify the identity of those advertisers and their business credentials. So, there's a lot going on in China that we don't have to deal with here in the United States.

Lewis: Unpacking a lot of that and getting a sense of what these regulations are driving at, I think you clearly have some efforts there to maintain the government's control over what gets said, and what gets in and out of China. But you look at some of these -- that content one in particular seems like kind of a protectionist measure that's doing something to preserve local businesses.

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