By Liza Lin, Jing Yang and Eva Xiao
Washington's ultimatum to the Chinese owner of TikTok -- sell
the app's U.S. operations or leave the country -- is hardening
long-held suspicions in China that the U.S. aims to sabotage the
country's efforts to grow its technology, while raising concern
about the precedent it could set for Chinese companies with global
ambitions as U.S.-China relations unravel.
After months in which TikTok owner Bytedance Ltd. fought to
appease the Trump administration, Washington's push for Bytedance
to sell TikTok's U.S. operations to Microsoft Corp. means China
will likely lose control over its first true global internet
sensation -- one with ambitions of becoming a top-tier global
technology giant -- in its most important market.
Turning over the U.S. operations to Microsoft would also likely
ripple across other Chinese internet companies that have harbored
global aspirations, like Alibaba Group Holding Ltd. and Tencent
Holdings Ltd., whose mobile app WeChat has been mentioned by top
U.S. officials as a potential target.
In the eyes of Beijing's leadership, Washington's move to
strong-arm one of its most valuable global tech companies into
selling a lucrative overseas unit is further proof that the U.S.
views any Chinese tech company with international success as a
challenge to its technology primacy, regardless of the product or
how it runs its business.
For much of the past two years, Washington's national-security
concerns revolved around Huawei Technologies Ltd., a Chinese
telecom giant that the U.S. has tried to blacklist world-wide --
with increasing effectiveness.
On Monday, Beijing slammed the U.S. move to force TikTok's sale
of its American unit as hypocritical, saying it reflected
Washington's double standards.
"Stop politicizing economic and trade issues, stop abusing the
concept of national security and stop pursuing policies of
discrimination and exclusion," Chinese Foreign Ministry spokesman
Wang Wenbin said at a regular briefing, in words aimed at
Washington.
President Trump's remark over the weekend that he was weighing
an outright ban of TikTok in the U.S. sparked nationalist
sentiments in China, where the Global Times, a Communist Party
tabloid, derided the situation as "the hunting and looting of
TikTok by the U.S. government in conjunction with U.S. high-tech
companies."
On Chinese social media, users likewise expressed outrage. Many
on the Twitter-like Weibo platform accused the Trump administration
of pandering to voters by stemming the rise of TikTok -- and by
extension, China.
On Douyin, Bytedance's domestic analogue to TikTok, where videos
commenting on a possible U.S. ban circulated widely, one popular
comment suggested Huawei be allowed to buy Apple Inc.'s China
operations.
Other Chinese social media users also aimed their ire at Zhang
Yiming, Bytedance's 37-year-old founder, for acquiescing to the
pressure -- a move that some Chinese commenters ridiculed as
"kneeling" to Washington.
After a weekend in which confusion swirled around TikTok's
future in the U.S., Mr. Zhang told staff in a Monday afternoon
letter that Bytedance was facing immense pressure overseas, and
that despite the company's attempts at convincing Washington that
it could offer technical solutions to mitigate concerns, TikTok was
still being asked to sell its U.S. operations.
"I hope everyone can maintain good morale amid the commotion and
challenges," Mr. Zhang wrote, saying that Bytedance's desire to
become a global company hasn't changed. "Trust that the company can
make good decisions in complex situations."
Unlike other Chinese tech titans, which have largely struggled
to expand globally while winning fans at home by cloning Western
platforms, TikTok's breakout success has been the product of its
own innovation, said Matthew Brennan, a China-based tech
consultant.
"TikTok was the moment when China technology went from 'copy to
China' to 'copy from China,'" he said. "Short video had first found
more traction in China, and when Bytedance moved into the U.S.
market, they were leading the big trend."
Even as Bytedance negotiates to sell TikTok's U.S. operations to
Microsoft, it is looking at other ways to mitigate global concerns,
including moving TikTok's headquarters outside China. London has
emerged as a front-runner, according to people familiar with the
matter, with the decision close to being made, one of these people
said.
Splitting TikTok's overseas operations from its Chinese roots
could prove nettlesome. Engineers would have to disentangle
TikTok's technical back end from its Chinese sister app Douyin,
with which it shares some of the code used in its recommendation
engine -- the secret sauce that drives TikTok's notoriously
addictive video feed, according to people familiar with the
company.
The two apps' algorithms are handled by engineers in Beijing and
Shanghai, these people said, and if Microsoft were to acquire
TikTok's U.S. operations, the algorithms would likely diverge over
time, according to one of these people.
Banning TikTok from the U.S. would also have deep financial
repercussions for Bytedance. Though the U.S. isn't TikTok's largest
market by downloads -- that would be India, which banned the app
last month -- the U.S. is among TikTok's most lucrative and
promising regions, where the app says it has 100 million active
users.
In a document shared with investors earlier in the year and
viewed by The Wall Street Journal, Bytedance -- which in addition
to TikTok operates several other news and social media services --
racked up 140 billion yuan ($20 billion) in sales last year, mostly
from advertising. It expects to have revenue of 200 billion yuan
this year.
Bytedance's investors include Japanese investment giant SoftBank
Group Corp., as well as U.S. investment firms General Atlantic and
Sequoia Capital. In March, New York-based Tiger Global Management
invested in Bytedance at a valuation of $100 billion to assist in
the company's path toward a U.S. initial public offering, according
to people familiar with the company.
Even as Mr. Zhang has faced increasing pressure from all sides,
he has maintained his belief that TikTok would come to rival
Alphabet Inc.'s Google and Facebook Inc. as an online advertising
juggernaut.
Besides TikTok, other Chinese tech companies could face the
wrath of U.S. officials and encounter similar dilemmas. Senior U.S.
officials including Secretary of State Mike Pompeo and White House
trade adviser Peter Navarro recently threatened to ban WeChat,
China's popular do-everything mobile app.
Unlike TikTok, WeChat never gained much traction abroad. The
app's 244 million daily active overseas users are mostly Chinese
and foreigners who need to engage with Chinese contacts for
business or personal reasons.
Like TikTok, WeChat has been kicked out of India, its largest
overseas market with 69 million users, following this year's deadly
skirmish on the China-India border. In the U.S., WeChat has 19
million users, according to app data tracker Apptopia..
Although any potential ban would inconvenience users -- and
Chinese authorities, who use the app as a tool to monitor the
Chinese diaspora and intimidate exiled dissidents -- analysts say
the impact on Tencent's bottom line is minimal since it doesn't
rely on overseas users to earn money.
What's more concerning is any long-term impact on Tencent's
global ambitions for its other operations in gaming, cloud services
and financial services, they say.
"A potential ban of WeChat would sound the alarm for Tencent and
make the company even more cautious about expanding its overseas
businesses. It will rely more on local partners in doing businesses
overseas," said Shawn Yang, managing director of research and
investment advisory firm Blue Lotus Capital Advisors.
--Lingling Wei, Lekai Liu and Raffaele Huang contributed to this
article.
Write to Liza Lin at Liza.Lin@wsj.com, Jing Yang at
Jing.Yang@wsj.com and Eva Xiao at eva.xiao@wsj.com
(END) Dow Jones Newswires
August 03, 2020 10:56 ET (14:56 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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