Trump’s attack on WeChat and TikTok highlights cost of China’s technological rivalry

  • WeChat
  • Monday, 10 Aug 2020

With a sideswipe at an icon of Chinese tech, one that every adult in China is utterly familiar with, Trump has delivered a message that has been heard in Shenzhen, China’s other tech hubs in Hangzhou, and the national capital Beijing. — Bloomberg

LOS ANGELES: If Donald Trump wanted to shore up America’s national security with his Thursday night executive orders pinpointing two Chinese apps, he has certainly not achieved much.

On the other hand, if he wanted to send a political message, and make it perfectly clear that China’s technological rivalry with America comes at a price, he succeeded hands down.

The shares of Chinese entertainment and tech firm Tencent dived on Aug 7 just hours after Trump issued an executive order banning the company's emblematic WeChat messaging app in the US, starting 45 days from now.

The Hong Kong-traded stock finished the day 5.04% lower, at HK$527.5 (RM285.45), having at one point been more than 9% down. As the largest component in the Hang Seng Index, Tencent’s plunge helped drag down the wider Hong Kong stock market by 1.6% on Friday to 24,531.62.

Earlier last week, buoyed by China’s gathering economic recovery, and its own digital prowess, Tencent had seen its stock reach an all-time high of HK$559 (RM302.50). That had been enough to overtake Facebook and make Tencent the world’s seventh largest corporation.

The US$35bil (RM146.77bil) decrease in Tencent’s value that Friday’s fall represents is massively out of proportion to the loss that the company could possibly suffer from WeChat simply being shut out of the US. The New York Times reports that WeChat has approximately four million users in the US – compared with the messaging app’s 1.2 billion monthly average users worldwide.

It is not even clear what the executive order intends by the phrase “transactions related” to WeChat. Does it mean that it would be illegal for existing US WeChat users to send or receive messages? Does it mean that WeChat and TikTok must be removed from US app stores? Do they have to be removed from the overseas app stores of US corporations such as Apple and Google?

But even with a sideswipe at an icon of Chinese tech, one that every adult in China is utterly familiar with, Trump has delivered a message that has been heard in Shenzhen, China’s other tech hubs in Hangzhou, and the national capital Beijing.

“The US is using national security as an excuse and using state power to oppress non-American businesses,” China’s Foreign Ministry spokesman Wang Wenbin, said at a Friday briefing. “That’s just a hegemonic practice. China is firmly opposed to that.”

TikTok has threatened to use the US justice system to halt the Trump-mandated sale of its US operations.

The new executive orders inevitably increase investors’ expectations that China will retaliate against US companies or interests – just as China last month retaliated against the forced closure of its consulate in Houston with the shut-down of the US diplomatic outpost in Chengdu, and as the two countries are engaged in a battle to expel many of each other’s journalists.

Might China now kick the US tech firms out of Hong Kong? There they currently sit on a knife edge, subject to the new National Security Law, but so far not co-operating with police requests for data.

“It seems likely that tensions will ratchet higher ahead of US elections, a factor that could play badly for risk assets,” said Mitul Kotecha, senior emerging markets strategist at TD Securities, quoted by Reuters.

While WeChat’s US operations are puny, Tencent has much to fear from a trade-, tech-, or Cold War between the US and China. It is one of the largest Chinese investors in Hollywood, and has stakes in businesses including Riot Games, Epic Games, as well as lesser known gaming businesses TiMi Studios and LightSpeed LA.

US tech firms, though largely banned or absent from direct to consumer sectors, also have much to fear from China’s retaliatory moves. Microsoft maintains a large R&D operation in China. And Google and Facebook both sell ads displayed outside China on behalf of Chinese client corporations.

Tencent’s Friday tumble dragged down Hong Kong’s one week old Hang Seng Internet & Information Technology Index by 2.21% to 4,695.94.

The index is stuffed full with mainland China’s most prestigious tech companies – electric car maker BYD, consumer services giant Meituan-Dianping, phone equipment maker ZTE, and chip-maker SMIC – all of which may be feeling increasingly unwelcome in the US. The index also contains companies like e-commerce titans Alibaba and that have recently given their shares secondary listings in Hong Kong in case American securities regulators turn nasty against New York-listed Chinese equities.

The new HSIIT Index then represents a list of targets for Trump’s next moves. – Variety/Reuters

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