On August 6, 2020, the White House issued two (2) Executive Orders (“EO”) banning the popular China-based social media app TikTok and the messaging and electronic payments app WeChat. Both orders are scheduled to take effect in 45 days (approximately September 21, 2020). While a U.S. ban on TikTok, owned by Beijing-based ByteDance Ltd., had been anticipated, especially after India banned the app earlier this year, the EO on Tencent Holding Ltd.’s (“Tencent”) WeChat was not anticipated and has significant potential business ramifications.
The EO related to TikTok will prohibit any transactions by U.S. persons with ByteDance Ltd. or its subsidiaries. The EO related to Tencent and WeChat is similar but only limits transactions related to WeChat. The EO on WeChat does not ban other transactions pertaining to Tencent, a large Chinese multinational conglomerate whose subsidiaries specialize in technology products and artificial intelligence (“AI”)—industries for which the U.S. and China heavily compete.
According to the EOs, both apps are being banned by the United States on the grounds that they both may be used to gather Americans’ personal/proprietary information for the Chinese Communist Party, to censor politically sensitive content, and for disinformation campaigns on behalf of the Party. The determination that TikTok poses a national security threat first stemmed from a CFIUS review of ByteDance’s acquisition of the social media app Musical.ly, which eventually became the app known in the U.S. as TikTok. Microsoft is currently in negotiations with ByteDance to purchase TikTok in order to comply with the upcoming ban.
Unlike TikTok, which is used recreationally by mostly unsuspecting users and is installed on over 100 million devices in the U.S., WeChat in the U.S. has a narrower audience almost exclusively consisting of Chinese users or those doing business between the U.S. and China. While in the U.S. email is still the preferred method of communication for most internet users, in China business communication is often conducted via social media platforms. WeChat is integrated with electronic payment solutions and e-commerce, raising the question of whether similar apps, such as Alibaba’s Alipay or Weibo, could also soon face a ban in the U.S. Similar to Tencent, Alibaba is a Chinese conglomerate heavily involved in e-commerce and AI that competes globally with Amazon, Microsoft, and others.
On the reverse side, many U.S. apps, such as WhatsApp and Facebook, have long been banned in China. Despite these barriers, U.S. and Chinese companies have found ways to do business and it is expected that companies will continue to do so. Nonetheless, the EOs on TikTok and especially on WeChat continue to stoke the already tense U.S.-China rivalry and may result in further strains on commercial ties and/or retaliation by China.