August 14, 2020
The proposed ban on TikTok by the US is similar to the Chinese ban on Twitter, Facebook, or WhatsApp, and a solution could be within reach. On the other hand, the WeChat ban could be problematic and has the potential to hurt American businesses operating in China.

A Worrisome and Growing List

“Huawei and other Chinese state-backed tech companies are Trojan horses for Chinese intelligence” Michael Pompeo, US Secretary of State.

Senior US Administration officials have publicly expressed concerns about Chinese technology companies’ social media applications popular with US consumers, for example TikTok and WeChat. The unease around Chinese consumer technology applications revolves around the Chinese Communist Party potentially accessing Americans’ personal and proprietary information captured by these companies. US officials contend that applications like WeChat can, for example, share a US user’s facial recognition patterns, information about their residences, phone numbers, and friends.

President Trump has issued executive orders to curtail the applications’ reach and potential for Chinese government access to US consumers’ information. One executive order is for Bytedance to sell its TikTok business in the US to an American company by September 15, or the mobile application’s access from the US could be limited. Microsoft and Twitter have each expressed interest in a deal. The president also issued an executive order to prohibit any transaction that is related to WeChat by any person, or with respect to any property.

Reaction from China

As expected, China reacted swiftly by denying all allegations and blaming Washington for the turbulent relationship between the world’s two largest economies. From the Chinese point of view, the US wants to inhibit a prosperous China from developing world-class companies that can easily compete with US companies.

Our Take

Only experience will tell us if Chinese technology companies are acting as Trojan Horses into the western world. However, it is difficult to refute that successful companies in China must conform with the socialist core values dictated by the Chinese Communist Party. Zhang Yiming, the entrepreneur behind ByteDance ( which owns TikTok) had to shut down another mobile application in 2018 by order of the National Radio and Television Administration due to content that disagreed with the Communist Party’s ideas. Yiming had to issue a public apology that promised cooperation with the state media in the future.

TikTok has been running on separate data servers, one for mainland China users and the other for users outside of China. With its newly appointed American CEO, Kevin Mayer, the company has been preparing for an initial public offering (IPO) in New York. By this plan, the company is already separated from China and would be a natural acquisition candidate for an American company.

On the other hand, implementing a blanket ban on WeChat could be very complicated and hurt more American business interests in China than delivering any visible benefits. The WeChat mobile application is on almost every iPhone and Android phone sold in China. The application’s payment system, WePay, is the backbone of internet transactions, including for the vast majority of American firms operating in China. The ramifications of a ban on WeChat for American firms could damage their Chinese operations.

Bottom Line

The US is moving closer to China’s internet policy for foreign applications, which bans foreign applications like Facebook, WhatsApp or Twitter. The proposed ban on TikTok could be viewed similarly. But due to the interconnectedness of WeChat with hardware, software, and day-to-day financial transactions, the WeChat ban could hurt many American businesses operating in China. Last year, the US threatened Mexico with duties for all Mexican goods without recognizing that it could harm US businesses more than those in Mexico. Similiar to the ultimate outcome in Mexico, a full blanket ban on WeChat may never materialize.

Emerging Market equities, where China is over 40% of the index, are vulnerable to attacks on its top company, Tencent, owner of WeChat. However, US Technology firms with operations in China are equally at risk here.

Disclosures

Advisory managed account programs entail risks, including possible loss of principal and may not be suitable for all investors. Please speak to your advisor to request a firm brochure which includes program details, including risks, fees and expenses.

International investments are subject to special risks, such as political unrest, economic instability, and currency fluctuations. Emerging Markets: Investing in the securities of such companies and countries involves certain considerations not usually associated with investing in developed countries, including unstable political and economic conditions, adverse geopolitical developments, price volatility, lack of liquidity, and fluctuations in currency exchange rate.

This material was provided by SunTrust Advisory Services, Inc. for use by BB&T Securities.

BB&T Investments, BB&T Scott & Stringfellow, and Sterling Advisors are divisions of BB&T Securities, LLC, member FINRA/SIPC. BB&T Securities, LLC is a wholly owned nonbank subsidiary of Truist Financial Corporation. Securities and insurance products or annuities sold, offered or recommended by BB&T Securities are not a deposit, not FDIC insured, not guaranteed by a bank, not insured by any federal government agency and may lose value. BB&T Wealth offers trust and investment management services through Truist Bank and other investment solutions through BB&T Securities, LLC.

Advisory managed account programs entail risks, including possible loss of principal and may not be suitable for all investors. Please speak to your advisor to request a firm brochure, which includes program details, including risks, fees and expenses.

Services are provided by the following affiliates of Truist Financial Corporation: Banking products and services, including loans and deposit accounts, are provided by SunTrust Bank and Branch Banking and Trust Company, both now Truist Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank and Branch Banking and Trust Company, both now Truist Bank and SunTrust Delaware Trust Company. Securities, brokerage accounts and /or insurance (including annuities) are offered by SunTrust Investment Services, Inc., BB&T Securities, LLC, and P.J. Robb Variable Corp., which are SEC registered broker-dealers, members FINRA, SIPC, and a licensed insurance agency where applicable. Investment advisory services are offered by SunTrust Advisory Services, Inc., GFO Advisory Services, LLC, BB&T Securities, LLC, Sterling Capital Management, LLC, Precept Advisory Group, LLC, and BB&T Institutional Investment Advisors, Inc., each SEC registered investment advisers. Mutual fund products are advised by Sterling Capital Management, LLC.

While this information is believed to be accurate, Truist Financial Corporation, including its affiliates, does not guarantee the accuracy, completeness or timeliness of, or otherwise endorse these analyses or market data.

The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Truist Financial Corporation makes no representation or guarantee as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. The information contained herein does not purport to be a complete analysis of any security, company, or industry involved. This material is not to be construed as an offer to sell or a solicitation of an offer to buy any security.

The opinions expressed are solely those of SunTrust Advisory Services, Inc. and do not represent the opinion of BB&T Securities. This material is presented for general information only and is not intended to provide specific advice or recommendations for any individual. To determine what investments may be appropriate for you, consult with your financial advisor.

Comments regarding tax implications are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.

Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance.

BB&T Securities shall accept no liability for any loss arising from the use of this material, nor shall BB&T Securities treat any recipient of this material as a customer or client simply by virtue of the receipt of this material.

The information herein is for persons residing in the United States of America only and is not intended for any person in any other jurisdiction.

Investors may be prohibited in certain states from purchasing some over-the-counter securities mentioned herein.

The information contained in this material is produced and copyrighted by Truist Financial Corporation and any unauthorized use, duplication, redistribution or disclosure is prohibited by law.

BB&T Securities officers, employees, agents and/or affiliates may have positions in securities, options, rights, or warrants mentioned or discussed in this material.

Asset classes are represented by indexes. An investment cannot be made directly into an index.

©2020 Truist Financial Corporation. BB&T, SunTrust®, the SunTrust logo, and Truist are service marks of Truist Financial Corporation. All rights reserved.

CN2020-1709 EXP12-2020