Southeast Asia may not be a safe harbour for Chinese tech giants

Southeast Asia has emerged as a new haven for Chinese tech companies. But domestic pressure and international relations present lingering questions for internet firms eyeing the region

Yutong Niu
September 21, 2021
Southeast Asia may not be a safe harbour for Chinese tech giants
A man walks past an Alibaba sign outside the company's office in Beijing on April 13, 2021. Photo: Greg Baker/AFP

Beijing’s recent crackdown on internet firms over alleged anti-competitive practices has exacerbated hardships for China’s technology giants. Beyond domestic regulatory pressures, Chinese tech companies face constant pushback from foreign administrations while venturing into new markets under the tension of the U.S.-China rivalry.

In recent years, online operations have eyed Southeast Asia as a land of milk and honey to escape domestic adversities and U.S. aggression. Yet Southeast Asia’s diversity and reliance on a U.S. presence for stability present nuanced challenges for the expansion of Chinese tech titans that may prevent the region from being the panacea many perceive. 

These firms have made strategic moves, aggressively expanding into other markets to diversify risks arising from U.S.-China political tension. With Southeast Asia’s  geographical proximity, cultural similarity and a growing yet much untapped demand for technological development, China’s online superpowers – Alibaba, ByteDance and Tencent – consider the region ripe for expanded market share. They have aggressively established their presence with new headquarters, talent recruitment and acquisitions or investments in local players.

online operations have eyed Southeast Asia as a land of milk and honey to escape domestic adversities and U.S. aggression

Former President Donald Trump issued a July 2020 executive order for ByteDance to divest ownership of its video streaming application, TikTok, citing data security and user privacy concerns allegedly posing threats to U.S. national security. Later in the year, the Trump administration used the same rhetoric to propose a ban in mobile app stores on WeChat, a messaging application developed by Tencent. 

Even though the administration of President Joe Biden dropped these Trump-era actions against apps owned by Chinese firms, they still signaled a treacherous path ahead of Chinese tech firms expanding into markets in the U.S. and its ally countries. The scrutiny in the name of national security continues amid the deteriorating relationship between Beijing and Washington, D.C.

Analysis firm Kearney predicted the digital economy in the Association of Southeast Asian Nations (ASEAN) has the potential to add $1 trillion to GDP over the next ten years, supported by the region’s rapid growth in internet users and generous government policies welcoming global tech firms to drive local digitalisation.

A woman walks past an entertainment robot by Chinese tech firm Sogou during the China Digital Entertainment Expo and Conference, known as ChinaJoy, in Shanghai on August 2, 2019. Photo: STR / AFP

Yet Southeast Asia should not be considered a safe haven for these Chinese tech firms as they are forced to retreat from the western capitalist world. With the diverse culture, history, demographic composition and distinct levels of socioeconomic development, it is perilous to perceive Southeast Asia as a monolithic entity from business or geopolitical standpoints. 

The weak functionality of ASEAN as a political entity leads to the absence of a regional regulatory body to enforce policies, adding complexities for tech companies trying to navigate ASEAN countries.

Until 2019, around 90% of the population in Singapore, the most developed economy in the region, had access to the internet. The proportion is 30.7% in Myanmar and 25.5% for Laos, nations burdened by different layers of underdevelopment. Even for rapidly growing economies like Vietnam and Indonesia, the capacity of internet usage varies by region due to unequal infrastructure development. 

The huge disparity in socioeconomic levels implies diverging development goals and differing economic interests. ASEAN is unlikely to devise a consistent foreign investment policy with tech firms that will gratify every member. For the companies, this involves nuance in their ground-level business development. 

Another complication arising from the lack of regional unity is the geopolitical uncertainty in bilateral relations with either China or the U.S.

As a result of the South China Sea controversy in which China has drawn the ire of regional neighbors with expansive territorial claims, Chinese corporations with a visible local presence are the first ones directly impacted by conflicts such as consumer boycotts, broken supply chains and other trade and investment restrictions. For example, Chinese garments were targeted in 2015 by the Philippines Department of Foreign Affairs amid the continuing maritime dispute, spreading panic among industry traders. 

Chinese tech products like TikTok, WeChat and Tencent Games that are reliant on user downloads and mobile engagement walk a thin line in Southeast Asia. These companies must pay close scrutiny to geopolitical events impacting bilateral relations with China and stay vigilant in their responses to grassroot movements impacting local operations. 

Despite strengthened economic ties between Southeast Asia and China through enhanced trade activities and economic partnerships, ASEAN members still rely on a strong U.S. presence for regional security. The U.S. worries that Beijing’s growing economic power will motivate the export of China’s autocratic political system and practices to other states in the region. The U.S. subsequently has leveraged its hegemonic power on the security front to resist Beijing’s growing political influence.

Chinese corporations with a visible local presence are the first ones directly impacted by conflicts

National security is what states make of it. Southeast Asian countries could use similar rhetoric over privacy and the Communist government’s political involvement to counter political tension with China, which could also slow or undermine the advance of Chinese tech businesses in the region.

Over the past few years, there have been escalating efforts by ASEAN members to enhance regional cybersecurity, often with resources supported by the U.S. The U.S.-Singapore Cybersecurity Technical Assistance Program (CTAP) and U.S.-Singapore Third Country Training Program (TCTP) were delivered to engage government officials and private institutions to support efforts to build cybersecurity capacity and reinforce U.S. digital connectivity and cybersecurity partnership initiatives.

The U.S. also has worked closely with its two strategic allies, Thailand and the Philippines, to consolidate their national data protection and cybersecurity standards through programs such as the U.S.-Indo-Pacific Standards and Technology Cooperation Program (STCP). 

The momentum of intensifying scrutiny and regulation of cyberspace security, with strong U.S. involvement, can add barriers for Chinese tech players. If successful, the digital empire they are trying to build in Southeast Asia might eventually turn into sandcastles.

Yutong Niu is a research intern at Pacific Forum, a Honolulu-based foreign policy think tank focused on the Asia-Pacific region.

Read more articles