By Jing Yang and Liza Lin 

President Trump signed an executive order Thursday that imposes strict new limits on WeChat, the most used app in China, intensifying a tech war between the world's two largest economies. The White House said it issued the order, typically used in emergency situations, to protect national security.

The order bars people in the U.S. or subject to U.S. jurisdiction from engaging in transactions involving WeChat with Tencent Holdings Ltd., the app's operator. Mr. Trump signed a similar order for Chinese-owned short-video app TikTok. Both orders take effect 45 days after they were signed. Of the two orders, the one affecting WeChat is far more consequential for China.

Here's a look at WeChat, why the Trump administration wants to ban it and why that matters to Beijing.

What is WeChat?

Tencent, a gaming and internet giant, launched WeChat in 2011 as an instant-messaging app. As it developed and added capabilities, it became the go-to example of China's capacity to innovate. Silicon Valley companies have since borrowed several of its earliest features, such as voice messages and an easy-to-use mobile payment system based on QR codes. Over the years, it has evolved into a super-app considered indispensable for navigating daily life in China, from socializing to reading news to buying vegetables at the supermarket.

How popular is it in China?

Among people who own smartphones in China, WeChat is virtually ubiquitous. The app's domestic and international versions had a combined 1.2 billion active users as of the end of March, according to Tencent. The company doesn't break down WeChat user numbers by country or region, but analysts say the majority are based in mainland China or Chinese people living abroad.

It isn't an exaggeration to say that WeChat is as essential as utilities for anyone living in China.

Many local Chinese governments offer e-services such as applying for certain licenses on WeChat and host official social-media accounts on the app.

What makes it different from other chat apps?

WeChat is an app of apps. Beyond text and voice instant messaging, it offers a Facebook timeline-like function that allows users to post texts, photos and videos. Its payment function, tied to a user's bank account, can be used to pay for a range of goods and services, including utilities like electricity and gas and even wealth-management products.

More recently, the app has added what it calls "mini-programs," light apps that Tencent helps retailers, restaurants and other businesses to develop to service customers on the platform. The apps now number in the millions, according to Tencent, transforming WeChat into one of the country's most powerful channels for sales and marketing.

What sort of presence does it have outside China?

Tencent launched an effort to sell WeChat to international users in 2012, hiring Argentine soccer legend Lionel Messi to help promote the brand. The app never took off, due largely to competition from WhatsApp, and within a couple of years Tencent all but gave up taking it global. Throughout the years, however, WeChat's influence in China has been carried around the world by the Chinese diaspora and foreigners with professional or personal ties with China.

WeChat had 70 million daily active users in India until it was banned there following a border dispute in June, according to app data tracker Apptopia. In the U.S.. 19 million people use it daily. WeChat has also been a popular e-commerce and marketing conduit for foreign brands to tap into China's market. Starbucks Corp., Walmart Inc. and Gap Inc. are among the household names that rely heavily on the app to reach Chinese consumers.

What impact does such a ban have on Tencent?

Analysts are scrambling to figure out the financial impact for Tencent of Mr. Trump's executive order, which was vaguely worded. The Shenzhen-based company generated less than 3% of its revenue from the U.S. last year, according to estimates by analysts led by Alex Liu at China Renaissance Securities (Hong Kong) Ltd. Still, Tencent's Hong Kong-traded stock price slid as much as 10% on Friday, before regaining some losses and closing 5% down at HK$527.5 ($68) a piece.

Videogames contribute to a third of Tencent's revenue, but WeChat is the linchpin that provides the traffic and user data that fuel Tencent's other businesses. In the worst-case scenario for Tencent, U.S. computer-chip makers could be restricted from supplying chips the company uses to run its servers, which power WeChat, gaming and other businesses, according to David Dai, senior research analyst at Bernstein C. Sanford.

Why does the Trump administration want to ban it?

In a letter posted online, the Trump administration said WeChat captures "vast swaths of information from its users," which potentially exposes the personal information of Americans and Chinese nationals living in the U.S. to exploitation by China's ruling Communist Party. U.S. authorities say that WeChat, similar to TikTok, censors content that the party deems as politically sensitive, and could potentially be leveraged as a tool for disinformation campaigns that benefit Beijing. More broadly, the possible ban is in line with the U.S. government's campaign to purge "untrusted" Chinese apps and equipment from U.S. digital networks.

A spokesperson for Tencent said the company is "reviewing the executive order to get a full understanding," but didn't elaborate. In the past, the company has said that it protects users' privacy and manages content according to laws in the countries where it operates.

What sort of data does WeChat collect?

According to Tencent's privacy policy, WeChat collects user data such as personal information, location and device details. Other data stored include media and contact lists on the users' device, and a record of search queries in the app. If users opt in, the app can also collect biometric data such as facial recognition scans and voiceprints to use in verifying identities and for account security. Data collected from users of the international version of its app is stored in servers in Canada and Hong Kong, the Tencent policy said.

How does censorship work on WeChat?

WeChat uses a sophisticated set of censorship systems that treat users of its domestic and international version differently. In 2016, researchers at the University of Toronto's Citizen Lab tested thousands of keywords on WeChat accounts registered in China, Canada and the U.S. and found 174 that triggered censorship. The majority were related to the 1989 Tiananmen Square protests, pro-democracy protests in Hong Kong, the banned spiritual group Falun Gong and memes involving senior Communist Party leaders. The words were only censored for accounts registering for WeChat with Chinese mobile numbers.

The same researchers showed how WeChat masks some of its censorship by using "disappearing messages" -- pictures and messages that appear to the user to have been sent but that never reach the intended recipient https://www.wsj.com/articles/chinas-stopchat-censors-can-now-erase-images-mid-transmission-1500363950

More recently, Citizen Lab found that text and pictures sent by users of the international version of WeChat are being monitored by Tencent and used to refine the censorship system used in mainland China.

How important is WeChat's overseas presence to the Communist Party?

Chinese authorities rely heavily on WeChat to keep tabs on Chinese nationals living abroad, as well as members of the Chinese diaspora. China's security agencies have used the app to harass and intimidate dissidents and political refugees living in other countries. The government also has easy access to WeChat data, allowing it to snoop on conversations Chinese abroad are having with friends and family back home.

WeChat also helps the party maintain control over Chinese abroad by locking them into a heavily censored information ecosystem. In Australia, home to a large Chinese community, Chinese nationals often turn to Chinese media on Wechat more frequently than to local newspapers, according to Fu King-wa, a journalism and media studies professor at the University of Hong Kong.

Write to Jing Yang at Jing.Yang@wsj.com and Liza Lin at Liza.Lin@wsj.com

 

(END) Dow Jones Newswires

August 07, 2020 10:47 ET (14:47 GMT)

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