President Trump's move to ban TikTok has drawn plenty of attention, in large part because the short-video app from Chinese firm ByteDance has gained quick popularity, with 100 million users in the U.S. A similar move against WeChat is receiving less attention but potentially carries more consequences for many people and companies.
More Than Just an App
To call WeChat an app is an understatement. Owned by Tencent Holdings (HKEX: 0700), it's an entire online ecosystem where many Chinese consumers spend hours every day. It combines chat and other social media functions with mobile payments, a ride-hailing service, travel services, e-commerce and more.
"Think of WeChat as one app that includes Amazon (Nasdaq: AMZN), Facebook (Nasdaq: FB), Instagram, WhatsApp, Uber (NYSE: UBER), Expedia (owned by Microsoft – Nasdaq: MSFT), Venmo, PayPal (Nasdaq: PYPL), short-form podcasts, and food delivery," the SupChina news portal wrote in its weekly client alert. "And whatever WeChat can't natively do, it can do through its third-party development partnerships, whereby others can build micro apps that launch within WeChat itself, thus making WeChat almost equivalent to an operating system instead of just an app."
WeChat has only about 3 million users in the United States, and they can't use the app in as many ways as their Chinese brethren. But there are 1.2 billion users in China – almost everyone. It is THE mode of communication. When people are using their smartphones, they likely are on WeChat (Weixin in China). When people meet in China, they seldom exchange phone numbers or even business cards. Instead, they exchange WeChat contacts.
Forget phone calls, email and other forms of person-to-person communication. WeChat is what's most widely used. This is why Trump's impending ban is particularly cruel. Chinese students in the U.S. and people from China who have moved to the U.S. but retain families back home rely on it. So do Chinese travelers to the U.S., although there aren't many of them now and likely won't be for years because of crashing relations. The order largely cuts off these millions of people from their friends and family in China.
Then there are the commercial implications. China is Apple's largest foreign customer by far. It sells iPhones by the millions there every year. If it is forced to ax WeChat from its Apple store in China – which seems clear from Trump's executive order – who is going to buy a new iPhone? Almost no one. Sales will collapse.
There's more. Western businesses operating in China routinely promote and sell their goods using WeChat. Consumer firms such as Walmart (NYSE: WMT), Nike (NYSE: NKE), KFC (Yum! Brands – NYSE: YUM ), Starbucks (Nasdaq: SBUX) and Coca Cola (NYSE: KO) stand to lose billions of dollars in sales in the world's largest consumer market because the order bars them from using the app for any business purpose.
We know that Trump couldn't care less about cruelty and putting an end to people-to-people ties, but has he thought through the commercial implications? That's something he does care about, but it's highly doubtful.
Rationale Behind the Hysteria?
Craig Allen, head of the U.S.-China Business Council, which promotes trade with China, called on the Trump administration to share what it knows. "Right now, the evidence has been presented in very vague terms, without any level of granularity that would give one comfort that rule of law and due process has been fully given to foreign companies operating in the U.S. market," Allen told the South China Morning Post.
Trump and his team simply are blazing new trails in their anti-China hysteria, especially when it comes to technology. According to the executive order, "the spread in the United States of mobile applications developed and owned by companies in the People's Republic of China (China) continues to threaten the national security, foreign policy and economy of the United States."
That is an incredibly broad brushstroke to paint against Chinese apps. Trump has not explained how apps like TikTok and WeChat threaten the U.S. Tencent, the parent company of WeChat, is well-known for censoring certain speech in China, and it no doubt collects data from Americans using it. So what? I use WeChat to talk to my Chinese friends, after having spent four years living in Shanghai. I use it in part to get their take on the deteriorating relations between our two countries. I criticize the central government, especially its ridiculous aversion to foreign information, all the time. But I don't worry that the Chinse government has access to my chats or a bit of personal account information.
The new rules would also seek to restrict Chinese cloud service providers including Tencent, Alibaba (NYSE: BABA), and Baidu (Nasdaq: BIDU) from collecting, storing and processing the data of U.S. citizens. That actually makes sense from a national security perspective and to protect American commercial interests.
"Some of the Trump administration policies are actually trying to address real problems, like cyber-enabled theft of intellectual properties," Daniel Russel, a diplomacy expert at the Asia Society Policy Institute, said during a panel discussion Tuesday about the national security law's impact on U.S.-China relations hosted by the South China Morning Post. "But in many, if not most, of the cases, the measures by the Trump team really don't do anything to solve the problem. In some cases, they are making things worse."
It's not even clear that Trump has the legal authority to ban a globally available app via executive fiat, and Tencent is reported to be seeking clarification on the administration's recent action. The company just this week reported a quarterly profit 37% higher than last year while saying that the U.S. accounts for only about 2% of its business.
Meanwhile, Chinese trade negotiators want to expand the agenda for coming trade talks to include the U.S. action against WeChat and TikTok. Will more clarity or at least a reasonable rationale surface? Don't bet on it.