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.
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.
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.
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