Beijing Sinnet says it will buy Amazon Web Services’ China business
wsj.com
wsj.com
1. Amazon decided that the risk of doing business in China (handing over information & know-how to the government, helping it suppress the human rights of its citizens, etc) was not worth the revenue that it would make.
2. It sold for $300 million. That means its run-rate was probably only $50 million a year or so annually (or maybe less). That's not very much at all, given that AWS' annual global business is about $10 billion and rising (so China's cloud share accounted for less than 0.5% of AWS global cloud business.)
China will likely start opening up more because Western companies aren't as naive anymore and short term profits for long term losses aren't much of an option anymore now that Chinese companies are well developed in all the tech and economies of scale.
Or: China will build local champions who can grow inside a protected region and then, once they have their playbook down and anfat balance sheet, they can go out and buy market share in other regions.
* Attract western businesses to make investments based on various capital incentives. You are a free market, after all.
* Once they are established and comfortable, start imposing restrictions, stealing IP and undercutting foreign companies. Make life increasingly difficult, except for those companies which you really need to stay in the country (Apple etc).
* Eventually drive out foreign business because some domestic company has stolen the tech, gotten the market share and is willing to play back with the govt
Why play that game? You can't win. Why anyone invests anything other than manufacturing in China is beyond me.
If your entire product can be stolen via a USB drive (source code, proprietary manufacturing processes, IP in general) stay far, far away from Chinese businesses or China. They are playing to win in a very serious way.
1 billion people to buy your stuff is pretty tempting!!! If you are a CEO with 10 million shares of stock in BigCo.. and profits are going up like 1% a year.. why not roll the dice with China? If it works for a year, you make a bunch of money and cash out. If not, you don't "lose" anything.
I remember a conversation I had in the late 1990s with the owner of an Indian textiles company (father of a friend). He said Western companies investing in China were idiotic. He was upset because Chinese mills were selling textiles for cheaper than the raw inputs. His point was that anybody who thinks they can "compete" in such a market is stupid. The Chinese government (buoyed by dumb Western money) can support their producers for longer than any non-Chinese company can stay solvent. That will remain true for the foreseeable future.
The only winning strategy is to use this state of affairs to your advantage, which mostly means exploiting Chinese labour and investments to bolster your position in foreign markets. But trying to compete directly in the Chinese market is just dumb. The government isn't stupid. Long-term they know that they'll need every penny of their consumer market to prevent the financial collapse of their producers. And even if the collapse comes, that makes it all the more important to capture that value.
Better to wait it out until the Chinese market matures. You'll end up no worse than someone who entered prematurely, and probably better off.
Let's not forget that there is an international trend to close down more (to use the same metaphor), including the U.S. and U.K. China could follow that trend too, and certainly the progress of free trade no longer can be assumed.
The President of the U.S. just gave an unprecedented speech at the Asian summit, criticizing institutions of rules-based, cooperative international trade expansion, criticizing trade partners, and arguing in favor of every nation adopting his isolationist, nationalist approach. (China's president followed with a speech favoring international trade cooperation.)
American markets are actually open. Americans can invest their money anywhere. Foreigners can buy property and own companies with few restrictions.
China discourages imports by punitively taxing them. Chinese face strict capital controls. Foreigners and their businesses are heavily restricted in what they can buy and what activities they can engage in.
The float of the royal mail is one example retail investors in the USA where locked out
Trump just took office in January; it will take awhile to redirect the massive ship of state. So far he's pulled out of TPP, may pull out of NAFTA, may pull out of the S. Korea trade deal ...
Xi Jinping may know the correct platitudes about free trade to mouth to please an audience, but his vision of trade cooperation has little to do with genuine openness, and everything to do with cementing Chinese economic and political hegemony.
Perhaps you could present some evidence?
I paraphrased what he said accurately; 'he misspoke' is baseless and an insufficient explanation. His policy is America First, a term that purposely revived from nativists and isolationists of an earlier era. The President and his administration has advocated it over and over, in multiple forums. His national security advisor and (secretary of state or another high official) wrote an editorial asserting that there is no "community of nations", and that the U.S. will serve itself without significant regard to others' interests. They've also asserted, repeatedly, that the U.S. has no interest in democracy or the rights of others.
The parent's claims regarding Xi's speech are also baseless. Like Xi's predecessors and peers the world over for generations, Trump being the notable exception, he appears to understand that all benefit from the free trade regime and that the powerful nations, including China and the U.S., benefit most.
1) force foreign companies to "partner" with local Chinese companies. This leads to the joint ventures using backdoors and surveillance against the users
2) Once the partnership is mature enough, the local partners can steal the technology and know-how of the foreigners, and then start competing with them. And because they are local Chinese companies, Chinese customers tend to prefer them, too, to the detriment of the foreign companies.
This strategy seems to have worked rather well against pretty much anything except super-entrenched foreign products, like say Windows (which is mostly pirated in China anyway, but without that piracy, Windows would have been relegated to a niche OS a long time ago in China).
Even Intel is getting kicked out of China, slowly but surely, as Chinese companies start doing both chip design and chip manufacturing. It didn't help that the U.S. government also recently banned Intel from selling server chips to China in supercomputer contracts because China was doing "nuclear testing" on those supercomputers (Say what? That sounds like a BS reason the Obama administration used to cover-up for something else, but anyways, it still hurts Intel and other American chip companies).
What worries me most is not just that those local Chinese companies are starting to bring in billions and billions of dollars every year, which allows them to expand globally (backdoors and all) and acquire foreign companies from abroad, too, but also that Chinese tech is starting to be preferred by foreign companies (again, with backdoors and all).
Take for instance Baidu's "self-driving platform", Apollo. Volvo is going to adopt that in its self-driving cars, and there are other carmakers that are considering the same, too. Are you FREAKING KIDDING me? They want to build millions and millions of Chinese self-driving cars over which you'll have no control with Chinese backdoors in them? What could possible go wrong?!
I mean I'm sure the NSA will try the same in the U.S. with "lawful intercepts" and whatnot, but I doubt most will accept it and I think those that do will pay the price for it. But the Chinese backdoors are pretty much a certainty.
And yes, I know, Baidu's platform is "open source", but first off, I don't think 100% of it will be open source. They might release certain add-ons that the carmakers will want that aren't open source and public.
And second, if the Chinese spy agencies are anywhere near as smart as the NSA, the backdoors they will put there will look like some "dumb mistake" a programmer made a long time ago. It will be discovered 5 years later, patched as a regular bug, and things will go on as usual (with 3 other backdoors/intentional vulnerabilities thrown into the code).
I couldn't find any reference to that on the web?
Perhaps the price was based, to a degree, not on financials but on politics. Someone I know told me the story of working for a major international telco in South America, when the host country decided to nationalize their local phone service. The nation's government provided a check for $1 million (IIRC), far below the value of the business, but of course the company took the check without argument.
I have no idea what happened with AWS in China. When corrupt politics intersects with business, it perverts the market and rule of law - something those doing business in the U.S. should keep in mind too.
Unlike west globalization trends, China actually cares about its own interests first, not the interests of mega corp owners.
This sort of sale/partnership occurs all the time with automakers since they're either not allowed to do business or subject to insane taxes and tariffs if they aren't majority Chinese.
For instance, Volkswagen in China is 50% owned by Shanghai Automotive Industry Corporation - a Chinese company.
I don't see any reason to run around and proclaim doom and gloom and the end of AWS as we know it or anything.
Sinnet only buy the Beijing equipments to make them a national assets for the regulation compliance. AWS China to open another region very soon in Ningxia, which not included in the deal.
Seems like a pretty massive technology transfer.
This was long time coming:
https://www.nytimes.com/2017/08/01/business/amazon-china-int...
Though I wonder how are the acquiring companies funded? And if China can continue doing this long term.
This is a great strategy for China and it’s utterly insane that we allow this situation to continue.
That is the point I am trying to make. How long before everyone says this is insane and tries to start blocking deals?
Though China's inflation due to currency printing press might come home to roost before that happens.
Capital investments largely are coming from equity markets, VC firms, etc. There's so much free cash floating around globally that there's little need to leverage fractional reserve banking. That's why banks so vociferously oppose margin controls--they're having to compete with all the cheap money.
I bet that Taiwanese, Japanese, and Singaporean corporations filter and structure their deals differently given that they have much deeper and historic ties to China, and are more familiar with long-term planning in the context of centralized political economies. Perhaps someone could confirm or dispute that.
Reports that #AWS is exiting its China business are completely wrong. Sinnet transaction is to meet Chinese regulatory requirements. #AWS remains committed to provide its service in China. - Werner Vogels
No. Look at their website http://en.sinnet.com.cn/home/default/index.html
北京光环 was founded in 1999 and run their own ISP and CDN. They are clearly not a 'just a shell company' and are a local partner.
Mmmm, does China care about who owns the intellectual property? That's a first
Apple and Starbucks are among the few still thriving, for now. GM is also still doing ok there, via a typical partial ownership arrangement.
McDonald's and YUM! Brands threw in their towels, after initially having booming businesses.
Keeping in mind that half of Jack Ma's wealth derives from one of the greatest thefts in world history, of Ant Financial from Alibaba shareholders (including Yahoo and Softbank). Equivalent to Bezos discharging AWS into his own private hands, without compensating Amazon shareholders. Let's also hope Jeff Bezos doesn't learn that trick.