In the last week, US President Donald Trump signed an executive order barring people in the United States from using Tencent Holdings Ltd. operated app WeChat. In an already tense US-China environment, this ban serves to escalate the ongoing tech war between the two countries.
WeChat started off as an instant text messaging app but has grown into perhaps the most important and widely used app among the Chinese people. The app is now used for monetary transactions, news updates, making reservations, and even applying for official government paperwork. For most Chinese people, this app has evolved beyond a socializing platform and into a life-management tool.
At the end of the first quarter of 2020, there were about 1.2 billion WeChat users worldwide. This ban affects not only WeChat users in the US, but also American companies that rely on WeChat to interact with Chinese people and conduct business in China.
The premise of the order is to protect the United States from the “national emergency” of data infringement through Chinese mobile applications. In this case, the order seeks to address the threats of “national security, foreign policy, and economy” posed by the use of WeChat.
Section 1(a) of the order states:
“The following actions shall be prohibited beginning 45 days after the date of this order, to the extent permitted under applicable law: any transaction that is related to WeChat by any person, or with respect to any property, subject to the jurisdiction of the United States, with Tencent Holdings Ltd. (a.k.a. Téngxùn Kònggu Youxiàn Gongsi), Shenzhen, China, or any subsidiary of that entity, as identified by the Secretary of Commerce (Secretary) under section 1(c) of this order.”
The order does not specify the nature of the transactions or the subsidiaries that are yet to be identified by the Secretary of Commerce. Due to the ambiguous use of language, US companies have raised concerns about it and how this order will impact their business. If the order applies to US companies in their business dealings globally then they stand to lose out on the revenues from China.
The ubiquity of WeChat in China demands businesses to adopt it to remain competitive. In a call with White House Officials on the 11th of August, some of the most major US companies voiced their concerns. A report in the Wall Street Journal suggests that “more than a dozen” companies including Apple, Disney, Walmart, Procter and Gamble, Intel and Ford were a part of the call.
The president of the US-China Business Council, Craig Allen, told the Wall Street Journal, “For those who don’t live in China, they don’t understand how vast the implications are if American companies aren’t allowed to use it. They are going to be held at a severe disadvantage to every competitor.”
The companies are calling for a revision of the order, asking the president to limit the ban on WeChat to the US only. This ban would affect their marketing strategies as well as everyday transactions. In order to continue regular business and reach as many consumers as they can in China, the use of WeChat is a necessity.
A survey on Weibo, a social media site used in China, asked users to choose between iPhones and WeChat. As reported by Bloomberg, of the 1.2 million responses, approximately 95% of users chose WeChat. A prediction made by apple analyst Ming-Chi Kuo notes that the removal of WeChat from Apple’s play store may drop iPhone sales by a maximum of 30%. Chinese users may not see any benefit in having an Apple product if they cannot use WeChat on it. Currently, Apple has a $44 billion market in China.
One of the other points that have been raised, is brought to light by companies that use other services of Tencent Holdings Ltd. The order is not clear about the impact, if any, it has on other platforms run by Tencent.
The National Basketball Association (NBA) has a marketing deal with Tencent that streams their games in China. Mike Bass, an NBA Spokesman said that they are “awaiting further clarity on the executive order” to see if their dealings with Tencent will be affected.
Tencent CFO John Lo, on a call with Mr. Trump on Wednesday, said that he believes the ban will not be applied to the dealings with the Chinese domestic market but is still seeking clarifications.
Meanwhile, according to Sensor Tower, WeChat downloads in the U.S have had a 41% jump since the announcement of the ban.
As of now, the ban is expected to go into effect 45 days from the signing of the order, i.e, in late September.