Zoom walks U.S.-China tightrope

Last week, videoconferencing company Zoom sought to reassure global users that it would no longer shutter accounts outside of mainland China at Beijing's behest. But Zoom's struggle to please two governments with radically different ideologies is only just beginning.

Why it matters: U.S. tech companies with a significant presence in China face penalties or even expulsion from the country if they don't abide by Chinese government requests, and severe censure from U.S. civil society and government officials if they do.

• These opposing pressures are forcing U.S. companies to create two sets of values within the same company to be able to operate in both markets — a phenomenon that may not be sustainable long term.

What's happening: Zoom said it would build up the capacity to block mainland Chinese users from joining online meetings, thus allowing it to comply with Chinese government requests without affecting users outside of China.

But Zoom's statement only inflamed further criticism.

• U.S.-based professors who use Zoom to teach online classes to students in China worry their students could face repercussions if class discussion veers into territory the Chinese Communist Party considers off-limits.
• U.S. senators pushed Zoom CEO Eric Yuan to uphold democratic values, writing in a letter, "We urge you to be true to your company’s stated values, which include embracing 'different ideas and visionaries.' Zoom must be transparent and not allow foreign governments, such as the PRC government, to dictate the terms of usage."

Zoom's primary dependence on China isn't a massive consumer base but rather its research and development team.

• Zoom has about 700 engineers in China and several China-based subsidiaries, according to the company's most recent SEC filings.
• Zoom has stated that having its research and development team in China helps it cut costs and is therefore a major driver of profit.

The big picture: The Chinese Communist Party is pushing foreign companies to comply with the demands of its surveillance state, which goes against the values of privacy and free speech that U.S. tech companies have traditionally espoused.

• “You have these global companies that are trying to straddle doing business in the free world and doing business in the autocratic world," said Jacob Helberg, a senior adviser at the Stanford University Cyber Policy Center.
• The dilemma is "how to be a company that has company values, and then trying to build products that are value agnostic," said Helberg. "It’s really hard to articulate and defend that. And it’s even harder over time when you try to gerrymander the same product, where you make one version for one market, and another version for another market."

Background: Several U.S. companies have found themselves facing the same conundrum in recent years.

• Google secretly worked on a censored search engine called Dragonfly, bespoke for China, until the project was suspended amid public outcry and employee protests.
• The NBA estimated it would lose millions of dollars in revenue from the Chinese market after Houston Rockets general manager Daryl Morey tweeted in support of the Hong Kong protests. The NBA's tepid support for Morey's right to free speech set off a firestorm of criticism in the U.S. NBA players have remained largely silent on the Hong Kong issue since then.

What to watch: China's laws mandate cooperation and coordination between Chinese firms and the Chinese government.

• A 2015 national security law obligates individuals and companies to provide assistance to the government to "safeguard national security," and a 2017 law requires private sector cooperation with China’s intelligence services.

This means Chinese law requires local employees to assist with government information and censorship, said Helberg.

• That's an enormous security risk given that government officials, tech startups working on sensitive technologies, defense contractors and many others rely on Zoom meetings in both their professional and private lives.
• Zoom denied that it provided user data or meeting content to Chinese authorities in the circumstances surrounding the recent account closures.

The bottom line: “If they don’t solve their fundamental problem of their engineering presence in China, all of the other adjacent steps they take are almost immaterial,” said Helberg.

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