Representational image | Joel Saget | Bloomberg
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Beijing/Hong Kong: By going after TikTok, the U.S. is expanding a fight against Beijing using Chinese-style restrictions on tech companies in a move that could potentially have enormous ramifications for the world’s biggest economies.

The Trump administration’s threat to ban ByteDance Ltd.’s viral teen phenom and other Chinese-owned apps could significantly hamper their access global user data, which is an immensely valuable resource in a modern internet economy. Any U.S. decision, which Secretary of State Michael Pompeo said would come “shortly,” is likely to be followed by a similar pressure campaign that prompted some allies to ban Huawei Technologies Co. from 5G networks.

Even if TikTok’s American operations are bought by Microsoft Corp., the episode is the culmination of a bifurcation of the internet that began when China walled off its own online sphere years ago, creating an alternate universe where Tencent Holdings Ltd. and Alibaba Group Holding Ltd. stood in for Facebook Inc. and Amazon.com Inc.

It is also splitting many in the industry: Some decry the betrayal of values like free speech and capitalism, while others advocate doing whatever it takes to subdue a geopolitical rival and its pivotal tech industry.

“This sets a dangerous precedent for the U.S.,” said Samm Sacks, a fellow on cybersecurity policy and China digital economy at the New America think tank. “We are moving down a path of techno-nationalism.”

Washington’s moves underscore how quickly the concept of an internet decoupling is becoming a reality even as the world is still figuring out its consequences. India showed the way when it banned dozens of Chinese mobile apps including TikTok and Tencent’s WeChat, while Australia and Japan are reportedly looking at similar options.

At issue is who controls the data — everything from private details like locations and emails to sophisticated mined information such as personal profiles and online behavior. Like India, Washington worries that TikTok could be funneling that trove to Beijing, potentially undermining national security by building databases on its citizens.

Worryingly for Beijing, it’s unclear where the U.S. would draw the line given the extent to which data is essential for companies these days. While Washington’s curbs against Huawei may have some grounds in terms of national security, the argument for banning TikTok is “very weak,” according to Yik Chan Chin, who researches global media and communications policy at the Xi’an Jiaotong-Liverpool University in Suzhou, a city near Shanghai.

“It’s not a reasonable argument — it’s like a blanket ban on Chinese companies,” she said. “How can Chinese companies ever do business in America?”


Also read: Why TikTok could be the deal of the decade for Microsoft and Satya Nadella


Careful what you wish for

President Xi Jinping may have himself to blame. China has long championed cybersovereignty, shutting out services like Twitter, forcing foreign firms to secure local partners and distributors in areas from mobile games to cloud services, or curtailing investment in areas such as online banking. Microsoft Corp.’s Bing and LinkedIn, which both censor content in China, remain the only major search engine and social network allowed to operate in China.

“We should respect every country’s own choice of their internet development path and management model, their internet public policy and the right to participate in managing international cyberspace,” Xi told attendees at a high-profile internet conference in 2015. “There should be no cyber-hegemony, no interfering in others’ internal affairs, no engaging, supporting or inciting cyber-activities that would harm the national security of other countries.”

Now it’s China that wants the world to embrace its companies and eschew overly broad interpretations of national security. Chinese Foreign Ministry spokesman Wang Wenbin said Monday the Trump administration “has been stretching the concept of national security without any evidence and only based on presumption of guilt,” and called for it to “create an open, fair, just and non-discriminatory environment for businesses of all countries.”

China’s past statements on cyber-sovereignty reflected its weakness at the time, and that view has evolved substantially since then, according to Zhao Ruiqi, vice director of School of Marxism at the Communication University of China in Beijing.


Also read: Microsoft not the only company interested in buying TikTok as threat of US ban looms


‘Split the internet’

“Trump’s move is threatening to split the internet, and this is something the world should avoid,” Zhao said. “Countries should sit down and discuss the limits of national security when it comes to internet governance.”

While some of Trump’s actions are regarded to be motivated by re-election considerations, others say going after TikTok has deeper significance. Already the world’s most valuable startup with a price tag potentially of $140 billion, ByteDance and its best-known product epitomizes the can-do spirit of a generation of consumer tech companies that may follow Alibaba and Tencent.

By hooking hundreds of millions of addicted youngsters from New Delhi to Denver, founder Zhang Yiming’s shown a cohort of entrepreneurs how a Chinese startup can make it to the big time and someday stand shoulder-to-shoulder with America’s largest corporations. Today, it serves some 1.5 billion monthly active users across a family of apps ranging from social media to games and education.

“TikTok symbolizes Chinese tech companies’ ability in algorithms, artificial intelligence and the ability to go viral and gain profits within a short period of time,” said Wang Sixin, a professor at the Communication University of China.

Now U.S. restrictions would force a contingent of up-and-coming stars in areas from gaming to livestreaming and media to reassess plans to expand globally just as they were starting to gain traction abroad. While TikTok is the first Chinese-made internet service to succeed globally, there are a host of others close behind.

Among the most downloaded Chinese apps over the past 12 months in the U.S. are Joyy Inc. platforms Bigo and Likee and Alibaba’s AliExpress shopping app, according to Sensor Tower. TikTok rival Likee, which also stresses it operates from outside China, this year made the U.S. a top priority for its global expansion, with plans to pour more money and people into the region.

Launched in May, short video company Kuaishou’s Zynn has topped U.S. app downloads at times. And WeChat — used by more than a billion people worldwide — is popular among the Chinese diaspora and U.S. executives with dealings in the world’s No. 2 economy.

If the administration decides data is the key determinant, then even some of the world’s most popular games may get ensnared. Tencent’s Call of Duty: Mobile, co-created by Activision Blizzard Inc., PUBG Mobile and its Supercell subsidiary’s Clash Royale are all popular with Americans.

What Bloomberg intelligence says:

Rising global threats to ban Chinese mobile apps, out of security concerns and as retaliation due to geopolitical tensions, may severely hinder the overseas growth of China’s internet firms. Joyy, Trip.com, Tencent, Alibaba and NetEase may face the biggest risks given their global ambitions and relatively high use of their services outside China.

Like other Chinese entrepreneurs, Zhang must now figure out how to sustain ByteDance’s sizzling pace of growth while largely confined to its own home market. Though ByteDance’s first breakout hit was a news app called Toutiao, it was TikTok that attracted hundreds of millions of users around the world. With 165 million installs, the U.S. is the app’s largest market after India, as well as its most lucrative one in terms of user spending, according to Sensor Tower estimates.

It’s a stinging retreat for a company that’s tried to offer a haven for the highest-paid artificial intelligence engineers. Zhang fought to remain independent from the country’s tech triumvirate of Baidu Inc., Alibaba and Tencent, making him a rarity in the industry.

Now Zhang may find himself on the wrong side of nationalism in both the U.S. and China. With hashtags about TikTok’s U.S. episode trending on China’s largest microblogging platform Weibo, Zhang hid all his posts from the public after users flooded his account with comments slamming his decision to sell.- Bloomberg


Also read: China slams US over threat to ban TikTok, says it’s flouting global trade rules


 

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