Trump’s ban on China’s WeChat may carry a heavy price
President Donald Trump has issued two executive orders that effectively ban the Chinese-owned apps TikTok and WeChat
As tensions between China and the United States escalate, the US administration has turned its attention to the China’s online services industry. President Donald Trump issued two executive orders on August 6 that effectively ban the Chinese-owned apps TikTok and WeChat. The impact of the TikTok ban will be limited, but targeting WeChat strikes at the heart of the China-US digital ecosystem.
What next
The centrality of WeChat for Chinese customers means that if the ban is interpreted strictly it will be nearly impossible for US businesses, digital and non-digital, to operate in China. The US government will probably escalate further in the digital realm, regardless of domestic costs, imperilling the political, personal and commercial linkages between the two countries.
Subsidiary Impacts
- TikTok's likely takeover by a US business will generate strong negative feelings in China, possibly triggering boycotts.
- Tencent's deep involvement with international content producers will decrease, further limiting content availability on the Chinese market.
- Fears of WeChat’s use an instrument of Chinese state power are well-founded, but the cost of banning may still exceed the benefit.
Analysis
Two executive orders issued target the Chinese firms that own two popular apps:
- ByteDance, which owns the video streaming platform TikTok; and
- Tencent, which owns the social media platform WeChat.
The language in these orders leaves broad scope for interpretation, probably on purpose, but what they seem to suggest is a ban on all transactions between US individuals and entities and these two businesses.
TikTok
TikTok is an app that allows users to post short videos to their followers (see CHINA: ‘New media’ create new markets and new risks - January 29, 2020).
Its popularity in the United States, particularly among young users, had already fuelled speculation about potential government intervention. It now seems likely it will be taken over by a US company, most probably Microsoft (see INTERNATIONAL: TikTok-Microsoft deal - August 3, 2020).
This alone will generate ill will in China, with the United States seen as "expropriating" a successful Chinese operation.
It would also be technically challenging: Microsoft would only purchase the TikTok app, which shares code and data with current owner ByteDance's other apps. It is also not clear whether Microsoft would take over TikTok's recommendation algorithm. In all, it could take up to a year to separate TikTok fully from all its ByteDance connections.
Although TikTok has captured more headlines in the West so far, the sanctions against WeChat are potentially more far-reaching and damaging to the bilateral relationship and third parties too.
TikTok is a standalone app, but WeChat's instant messaging app lies at the heart of an entire ecosystem of services, including online payment (TenPay), ride-hailing, e-commerce and access to social services. For hundreds of millions of ordinary Chinese citizens, WeChat is indispensable in daily life.
WeChat also has links to the Chinese state.
Chinese security services are reported to have easy access to WeChat data
Several dissidents have indicated they were called into police stations for conversations they held on the platform. Public posts and private messages are both censored.
WeChat in the West
WeChat's importance in the West lies in its connections to Chinese residents. The app's ubiquity in China, combined with the unavailability in China of foreign social media and messaging networks, make WeChat an important tool for anyone regularly communicating with Chinese contacts, be they friends and relatives or business partners.
WeChat is how parents stay in touch with their children studying abroad, foreign researchers communicate with their local counterparts and multinational companies with their branch offices. If WeChat were to become unavailable to US users, this alone would have considerable human and commercial repercussions.
The questions concerning surveillance and security that apply domestically are equally present internationally. WeChat has become a tool for Chinese security and intelligence agents to monitor, and sometimes even threaten or blackmail, targets beyond China's borders, including political dissidents and Tibetan and Uyghur activists.
WeChat facilitates the growing reach of China's security apparatus
As it is also a popular tool for Chinese students and engineers abroad to communicate, there might also be concerns about industrial espionage and intellectual property theft.
Implications of a ban
If the vague language of the executive order is interpreted as a ban on US companies doing business with WeChat's parent company, Tencent, this would make it hard for numerous US firms to continue operating in China.
This is clearest within the digital sector itself. Since WeChat is critical for any Chinese smartphone user, if Apple were obliged to remove it from its app store and sever support, iPhones would be useless to many Chinese consumers.
Furthermore, Beijing has recently issued a raft of regulations and policies imposing sanctions on foreign companies that limit technology exports to China "for political reasons" (see CHINA: Blacklist creates new danger for foreign firms - October 2, 2019).
This means that Apple might not only see its share of the mobile market disappear, but might also face retaliatory measures against its manufacturing chain, which is impossible to relocate in the short term.
If Google faces a similar problem with its Android system, currently China's market leader, it would rapidly stimulate the development of Chinese homegrown alternatives, which could ultimately mean that Google loses the Chinese market. Huawei last year announced that it would launch its own operating system, HarmonyOS, as an alternative to Android. It recently announced that it plans to run HarmonyOS on all its devices in the foreseeable future.
More broadly, dozens of US businesses, such as Starbucks and McDonald's, operate in China in partnership with WeChat, using its advertising and payment functions. The vagueness of the executive order's language means it is not clear whether such 'transactions' will be targeted.
Nonetheless, the order's focus on WeChat suggests that Tencent's other dealings with US entities will remain unaffected, at least for now. These dealings are substantial: Tencent has significant stakes in some of the largest US gaming and online entertainment companies (such as a 9% stake in the music-streaming service Spotify) and is the Chinese distributor for many of their products in China. It has a film production arm that is closely involved in Hollywood blockbusters such as the upcoming Top Gun sequel. It streams NBA basketball games into China and partners with Spotify for its domestic music streaming service.
Yet even if these activities are not immediately or directly involved, many business partners will expect circumstances to worsen in the future. This will potentially lead them to curtail or suspend their dealings with Tencent, and indeed other Chinese firms that might become the next target of Washington's continuous escalation, the most significant being the e-commerce conglomerate Alibaba. Whatever the cost to US firms, the process of decoupling seems set to continue.
