| AUGUST 7, 2020, 5:10 PM
Apps are just the latest frontier in the U.S.-China contest. Washington is signaling to global firms the risks of doing business with Beijing.
Following days of speculation, the Trump White House dropped two new executive orders on Thursday night, effectively barring any U.S. transactions with the Chinese social media apps TikTok and WeChat. The decision was made under the authority of the International Emergency Economic Powers Act that underlies U.S. sanctions programs. Amid a flurry of actions directed against China by the administration in recent weeks, including the rollout of a wide-ranging but unclear Clean Network program, this is perhaps the most significant.
Is this a big deal? What is WeChat anyway?
The new restrictions on the popular video-sharing app TikTok increase the likelihood of a quick sale to Microsoft, the U.S. software giant that has expressed interest in a purchase. It would likely be easy to slice off TikTok from its original Chinese ownership since it was set up as a separate system in the first place. WeChat, by contrast, is the same app in the United States as it is in China.
And in China, WeChat is everything. It started as a mere chat program but expanded into its own ecosystem: Imagine Instagram, Facebook, Venmo, WhatsApp, Twitter, and Uber Eats all rolled into a single megaplatform. The app is extremely convenient, well designed, and easy to use. It’s far more common to pay with WeChat Pay than with cash in Chinese cities, where even the destitute display QR codes. Some 83 percent of recorded Chinese transactions go through mobile payment systems, either WeChat Pay or its competitor Alipay. (That probably understates the continued usage of cash—more than 400 million Chinese are still offline, but cash transactions are much more difficult to track.) Even ID systems, a critical part of life in China, especially since the coronavirus pandemic, are being incorporated into WeChat.
WeChat hasn’t had anywhere near as much success outside China as TikTok. It’s difficult to access most of its features without reading Chinese or, in many cases, having a recognized Chinese ID. The vast bulk of its 1.2 billion users is in China—basically, every single person online in China is likely on WeChat—and the Chinese diaspora makes up a lot of the remainder. It made a serious effort in India but lost out to WhatsApp.
It’s important to remember that WeChat’s dominance lies in part because China already shut out competition. Virtually all foreign social media is banned in China and has been for a decade or so in most cases. WeChat is an excellent platform, but it has also thrived in a protected environment—and largely failed outside it.
What do the new restrictions actually accomplish?
As with many decisions coming from the Trump White House, the real impact is not entirely clear. The wording of the executive orders leaves much scope to interpret exactly what “transactions” are covered. The order covering WeChat was drafted so badly that it appeared to cover all transactions with Tencent, WeChat’s owner. That would have disrupted huge sections of the tech economy. Tencent has a large presence in online gaming, where, for instance, it owns 40 percent of Epic Games, which makes the popular game Fortnite, and has stakes in Reddit, Tesla, and Spotify, among other companies. But White House officials clarified—for now—that the order is only supposed to cover transactions regarding WeChat itself.
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