It’s Not Just TikTok. Chinese Firms Face More US Roadblocks

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Mark Zuckerberg puthis lungs on the line in March 2016. On a trip to Beijing seemingly aimed at helping persuade the government to let Facebook operate inside China, the CEO made time for a jog-cum-photo opp in a polluted Tiananmen Square.

Back home in Silicon Valley, meanwhile, China’s leading social media company, Tencent, was enjoying an easier overseas adventure. The owner of the popular messaging app WeChat acquired a controlling stake in Los Angeles-based Riot Games, producer of smash hitLeague of Legends, in 2011, and assumed full ownership in December 2015.

The contrast has widened in the years since Zuckerberg’s smog jog. The stunt ultimately did little to help Facebook vault China’s Great Firewall and gain access to almost a billion new users. Meanwhile, Tencent sank $90 million into the San Francisco mobile-gaming startup Pocket Gems, invested alongside Amazon in the hot autonomous car startup Zoox, and bought chunks of Uber, Snap, Tesla, and Reddit.

Now, though, Tencent and other Chinese companies face US hostility not unlike what Facebook dealt with in China.

On Monday, President Trump repeated his threat to ban TikTok, a hugely popular US video-sharing app owned by China’s Bytedance. Officials warn that TikTok could enable espionage or manipulate public opinion at Beijing’s behest. Microsoft said on Sunday that it is discussing a possible acquisition to save TikTok in the US; Trump gave his approval for such a deal Monday.

But TikTok is unlikely to be the end of the administration’s efforts. US secretary of state Mike Pompeo said as much in an interview with Fox News on Sunday. “These Chinese software companies doing business in the United States, whether it’s TikTok or WeChat, are feeding data directly to the Chinese Communist party, their national security apparatus,” Pompeo said. “Those are the issues that President Trump’s made clear we’re going to take care of.”

Tencent’s WeChat, a social networking platform that supports mini-apps for payments, ecommerce and more, is ubiquitous in China but has just a few million users in the US, mostly Chinese expats or Westerners with contacts in Asia. It’s unclear if Tencent’s games, such asLeague of LegendsandHonor of Kings,which boast hundreds of million monthly users worldwide and bring in billions of dollars in revenue each year, could also be targets.

Yun Sun, codirector of the Stimson Center, a Washington, DC, nonprofit that aims to foster international peace and stability. “We do see the Chinese companies becoming increasingly concerned about the environment that they are, or will be, operating in in the US market.”

Yun believes it is still possible for Chinese tech companies to navigate US government concerns, perhaps by accepting compliance officers or foreign board members to provide oversight. “It’s not that if a company is Chinese there is absolutely no way to remedy the security threat,” she says. It is far from clear whether such extreme measures would be acceptable to the Chinese government, or if they would assuage US concerns.

Chinese companies in other industries already face restrictions and mounting pressure. Telecom giant Huawei has been banned from US networks and is a target of investigations and sanctions due to alleged intellectual property theft, perceived ties to the Chinese government, and alleged sales to Iran.

Such treatment used to be the exception. Increasingly, it looks like the rule. Drones made by DJI have been banned from several US government agencies and could face broader restrictions. US lawmakers have also highlighted electric-vehicle maker BYD as a potential security threat, because it has received money from China’s government. The US recently imposed sanctions on Chinese AI startups, which are accused of aiding persecution of Muslim minorities in the province of Xinjiang.

Relations between Washington and Beijing have worsened under the Trump presidency over trade, national security, and technological advantage. But they have reached new lows in recent months amid recriminations over the Covid-19 pandemic.

This is threatening business relations built up over decades. China may be a no-go zone for Facebook and Google, but other tech companies, such as Apple and Microsoft, currently enjoy access. China is Apple’s largest international market, accounting for $44 billion of its revenue in 2019. Microsoft’s search engine, Bing, and its business-focused social network, LinkedIn, are both accessible within China, subject to government-imposed censorship.

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Alibaba, China’s ecommerce giant, listed on the New York Stock Exchange in 2014. But when it came time for its former subsidiary Ant Financial to list its shares, it chose exchanges in Shanghai and Hong Kong last month. In 2018, Ant dropped plans to acquire MoneyGram, a US money-transfer business, after an inquiry by the Committee on Foriegn Investment In the US, which reviews such deals and has also been scrutinizing TikTok.

Last year, CFIUS forced the genomics company iCarbonX to divest a majority stake in PatientsLikeMe that it acquired in 2017, and it made Beijing Kunlun Tech, a games company, sell off Grindr, a US gay dating app that it bought in 2016.

An increasingly hostile US environment is reflected in investment data. Since Trump took office in 2017, Chinese investments in the US have dropped by half, according to data gathered by Macro Polo, a China-focused division of the Paulson Institute. The decline reflects both greater US scrutiny and new restrictions imposed within China.

Chinese research outposts may also become less appealing. Companies like Tencent, Baidu, and Alibaba have built research centers in the US to tap local expertise and talent. Kaiser Kuo, who served as director of international communications for the Beijing-based search giant Baidu between 2010 and 2016, and who now runsSinica, a podcast covering China, says a Silicon Valley posting was once seen as a way to reward talented Chinese researchers. He says these outposts even served as a way to keep research out of the hands of cut-throat competitors within China. But now he suspects that tech companies will be postponing or shrinking these outposts.

Kuo says it’s unfair to assume that every company in China is a puppet of the state. “There is always this idea that Chinese companies are beholden to the Chinese government, and there’s obviously some truth to that,” he says. “What people fail to recognize is that companies are not always happy to do the bidding of the Chinese government, and they have a lot more wiggle room that I think most people assume.”

Many China experts say that while the US needs to address issues such as intellectual property theft and market protectionism, the administration’s hardline approach comes with the risk of harming US corporations that need to work with Chinese businesses. “Right now the Trump administration’s strategy is decoupling,” says Scott Kennedy, a senior adviser at the Center for Strategic and International Studies in Washington. “If they push too hard they may decouple Washington from American businesses, and the US from its allies.”


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