TikTok Maker Seeks to Strike Balance as China, U.S. Step Up Geopolitical Pressure

(WSJ) The Chinese maker of TikTok, the popular short-video platform, said it would pull its app out of Hong Kong amid concerns about a new national-security law, its second market exit in as many weeks, as Secretary of State Mike Pompeo hinted the Trump administration was considering limiting U.S. users’ access to the app.

Tuesday’s developments underscored the geopolitical challenges facing the first global social-media sensation to emerge from China. Last week, India—one of TikTok’s largest markets by users, accounting for roughly a third of its downloads—banned the app as part of an escalating border dispute between Beijing and New Delhi.

TikTok, which won over millions with its catchy dancing and lip-sync videos, has faced intense scrutiny in the U.S. as it grows around the world, and as U.S.-China relations hit the skids. In Washington, some lawmakers have called for an outright ban, saying data in the smartphone app would be available to Beijing.

In the U.S., TikTok was second in downloads to Zoom Video Communications Inc.’s namesake video-chat app in the first half of 2020, according to market-research firm Sensor Tower, which said TikTok has racked up 184.7 million U.S. downloads to date across the App Store and Google Play. The U.S. was TikTok’s third-largest market in new users in the first half of the year, after India and Brazil.

On Monday, when asked during a Fox News interview if the U.S. should ban Chinese social-media apps including TikTok, Mr. Pompeo said the government was looking at it. The Trump administration has already worked to keep network-equipment makers Huawei Technologies Co. and ZTE Corp. out of its mobile infrastructure, he added.

“With respect to Chinese apps on people’s cellphones, we can assure you the United States will get this one right,” Mr. Pompeo said. He didn’t offer details about how the U.S. would restrict access or indicate how seriously the White House is considering the move.

A spokesman for TikTok, which is owned by Beijing-based Bytedance Ltd., said it has an American CEO and employs hundreds in the U.S. “We have no higher priority than promoting a safe and secure app experience for our users,” he said. Previously, TikTok has said it never provided user data to the Chinese government, and wouldn’t do so if asked. A Bytedance spokesman declined to comment on Mr. Pompeo’s remarks and how the company is responding.

The pressures TikTok faces reflect the continued fracturing of the internet along geopolitical lines amid rising tensions between the U.S. and China. The Chinese government’s decision to wall off the country’s internet once helped its tech companies grow by shielding them from foreign competition, but the idea of erecting national boundaries in cyberspace now threatens the future of the first Chinese internet company to enjoy mainstream global appeal.

In Hong Kong, TikTok’s decision to pull back in response to the new national-security law came alongside similar moves by its U.S. social-media peers including Facebook Inc., Twitter Inc., Google parent Alphabet Inc. and Microsoft Corp.

Those U.S. tech giants—which operate popular social-media services including Facebook, Instagram, WhatsApp, YouTube and LinkedIn—on Monday said they would suspend compliance with government requests for user data in Hong Kong, after Beijing fast-tracked national-security legislation that gives law-enforcement officials in Hong Kong similar powers to those enjoyed by mainland Chinese authorities.

On Tuesday, Zoom, another U.S. tech-industry darling that has come under scrutiny in Washington for its China ties, said it too would pause its cooperation with Hong Kong authorities’ requests for user data.

The San Jose, Calif.-based company added Wednesday that traffic from free accounts, including those of Hong Kong users, doesn’t pass through data centers in Hong Kong. And paid customers can choose where to route their data, said a company spokeswoman.

Zoom drew criticism in June for suspending the accounts of U.S.- and Hong Kong-based activists commemorating the Tiananmen Square massacre at the request of Beijing.

“The golden age for these companies to ignore political implications of their operations is gone,” said Julien Chaisse, law professor at the City University of Hong Kong, referring to the Silicon Valley giants as well as TikTok. “They will have to choose where they go and how much they compromise themselves.”

But for TikTok, its move to end its services for Hong Kong users and remove its app from Apple Inc.’s App Store and Alphabet’s Google Play store went beyond that of its peers. That reflects in part the eagerness of TikTok’s owners to try to strike a balance between its Chinese home base and its global ambitions—particularly in the U.S.

The Bytedance spokesman declined to comment on why TikTok took a broader approach than peers.

TikTok has spent much of the past year trying to distance itself from its Chinese roots. It has considered moving its headquarters out of China and in May hired Kevin Mayer, an American who spent most of his career at Walt Disney Co., to be its new CEO. This year, the company also stopped using Chinese moderators to monitor overseas content.

Ensuring a smooth global expansion for TikTok is key for Bytedance, one of the world’s most valuable startups and whose initial public offering is highly anticipated. Shares of Bytedance recently traded on the secondary market at a valuation that implies a market capitalization of $150 billion for the company, people familiar with the transaction said.

Like other Chinese tech companies with increasingly global ambitions, most notably Huawei, TikTok has found its Chinese roots an increasingly heavy burden to bear as Beijing adopts a more confrontational approach on the global stage, and as President Trump steps up his rhetoric against Beijing.

The fast-moving geopolitical developments are forcing TikTok to respond quickly. After last week’s ban by Indian authorities, Mr. Mayer wrote a letter to Indian authorities emphasizing the company’s local hiring and investments in the country. Mr. Mayer also told Indian officials the app hasn’t and wouldn’t share Indian user data with the Chinese government.

Beijing’s move to impose the new national-security law on Hong Kong has added to the headaches for TikTok. Many of the senior Western government officials who condemned the move in Hong Kong are some of the same ones who are expressing alarm over TikTok’s rapid spread around the world.

TikTok’s move to pull out of Hong Kong is a convenient gesture by the company to emphasize its independence from China to the Indian and U.S. government, said Charles Mok, a Hong Kong lawmaker who represents the city’s information-technology sector in the Legislative Assembly.

“The U.S. and India are two huge markets they don’t want to lose. Hong Kong is nothing,” Mr. Mok said.

Hong Kong accounts for less than 1% of TikTok’s 2.2 billion lifetime installs, according to Sensor Tower. In contrast, the app has garnered more than 660 million downloads in India since its introduction.

In the first three months of 2020, TikTok racked up more than 315 million downloads, the most of any app in a single quarter, according to Sensor Tower.

In June, as the app grew in popularity with the lockdown keeping many users home, 7.5 million people in the U.S. had downloaded the app, versus 73,000 new installs in Hong Kong, Sensor Tower found.

TikTok isn’t profitable in Hong Kong, a company representative said Tuesday.

Bytedance has an advantage in confronting the new challenges in Hong Kong in that it also runs Douyin, an app that is similar to TikTok but caters to Chinese users and is subject to mainland China’s more stringent regulations. Douyin will still be available for use in Hong Kong, a Bytedance representative said. However, the Douyin app can only be downloaded from a mainland Chinese app store.

Source: Wall Street Journal by Liza Lin and Eva Xiao

TikTok Maker Seeks to Strike Balance as China, U.S. Step Up Geopolitical Pressure TikTok Maker Seeks to Strike Balance as China, U.S. Step Up Geopolitical Pressure Reviewed by TechCO on 7/09/2020 Rating: 5

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