Corporate America Worries WeChat Ban Could Be Bad for Business

(WSJ) U.S. companies whose fortunes are linked to China are pushing back against the Trump administration’s plans to restrict business transactions involving the WeChat app from Tencent Holdings Ltd., saying it could undermine their competitiveness in the world’s second-biggest economy.

More than a dozen major U.S. multinational companies raised concerns in a call with White House officials Tuesday about the potentially broad scope and impact of Mr. Trump’s executive order targeting WeChat, set to take effect late next month.

Apple Inc., Ford Motor Co., Walmart Inc. and Walt Disney Co. were among those participating in the call, according to people familiar with the situation.

“For those who don’t live in China, they don’t understand how vast the implications are if American companies aren’t allowed to use it,” said Craig Allen, president of the U.S.-China Business Council. “They are going to be held at a severe disadvantage to every competitor,” he added.

Other participants in the call Tuesday included Procter & Gamble Co., Intel Corp., MetLife Inc., Goldman Sachs Group Inc., Morgan Stanley, United Parcel Service Inc., Merck & Co. Inc. and Cargill Inc., according to the people.

The companies either declined to comment or didn’t respond to requests for comment. Their participation in the call with the White House is another sign that deteriorating relations between Washington and Beijing poses a threat to commercial relations between the two nations.

The WeChat app is used by more than 1.2 billion people globally and is ubiquitous in China, where consumers, businesses and government alike use it for mobile payments, messaging, e-commerce, official communications and other functions. For anyone doing business in China, including U.S. companies, it is also a vital marketing hub to connect with consumers.

One aim of the call was to seek clarity on the precise meaning of the executive order signed by Mr. Trump last week, according to the people familiar with the matter. That order barred “any transaction that is related to WeChat” by Americans but left details of what is actually banned to the Commerce Department to be worked out.

Companies are hoping the administration will narrow the order as it is implemented over the coming weeks, according to the people familiar.

Asked about Tuesday’s conference call, a White House spokesman issued a statement saying the administration “is committed to protecting the American people from all cyber-related threats to critical infrastructure, public health and safety, and our economic and national security.”

In announcing the action against Tencent, the Trump administration said that WeChat captures “vast swaths of information from its users,” potentially exposing the personal information of Americans and Chinese nationals living in the U.S. to exploitation by China’s ruling Communist Party.

The Trump administration announced a similar action against the TikTok video-sharing app. TikTok’s owner, Beijing-based ByteDance Ltd., is in negotiations to sell its U.S. operations.

Both companies have said they protect the privacy of their users. On an earnings call Wednesday, Tencent Chief Financial Officer John Lo said the company believes Mr. Trump’s order applies only to the international version of WeChat and not its domestic Chinese market.

“We are in the process of seeking further clarification from relevant parties in the U.S.,” Mr. Lo said.

Even so, U.S. companies are concerned the administration’s action could effectively cut them off from access to the lucrative China market, for example by ending their ability to accept payments or advertise on WeChat.

Apple is among the U.S. companies with the most at stake. Being forced to remove the app from its devices could be devastating. Analyst Ming-Chi Kuo at TF International Securities projected that global iPhone shipments could fall by as much as 30%, if such a ban goes into effect. Apple declined to comment.

Some U.S. entertainment and sports concerns, meanwhile, are worried they could be cut off from Tencent’s other digital services. The National Basketball Association, for example, has a deal with Tencent to stream its games in China. NBA spokesman Mike Bass said the league is “awaiting further clarity on the executive order.”

Chinese Vice Premier Liu He, President Xi Jinping’s chief trade negotiator with Washington, is expected to bring up concerns over the executive orders against WeChat and TikTok during talks with U.S. Trade Representative Robert Lighthizer’s team in the coming days, according to people familiar with the matter.

The main thrust of the discussion is aimed at evaluating China’s compliance with a bilateral trade agreement signed in January. But Mr. Liu, who has direct oversight over China’s technology industry, is planning to seek a “wish list” of sorts from the U.S. side to try to address concerns over the Chinese companies, one of the people said.

So far, Beijing has largely refrained from retaliating against the U.S. sanctions. Still, China’s Foreign Ministry has reacted angrily to the U.S. restrictions on the use of WeChat and TikTok, saying Washington is “carrying out political manipulation and suppression.”

The restraint partly reflects the limited presence of comparable U.S. firms in China, making it hard for Beijing to hit back against Washington eye for eye. Facebook Inc. for instance, has been blocked by the Great Firewall since 2009. Alphabet Inc.’s Google unit pulled its popular search engine out of the country a year later.

Analysts say Beijing could bar Chinese companies from placing ads on Facebook or Google, but such action would hurt these companies’ ability to expand overseas.

What’s more, big U.S. corporations traditionally have been Beijing’s strongest supporters in Washington—as the lobbying against the WeChat ban demonstrates—though their influence has ebbed under the Trump administration. Previous lobbying by U.S. chip makers led the administration to roll back or delay harsh sanctions against Chinese telecom giant Huawei Technologies Co.

But navigating the political waters is particularly difficult right now, given the looming U.S. presidential election Nov. 3.

“I think companies are worried about offending either Washington or Beijing and to the extent possible want to keep out of the crossfire,” said Scott Kennedy, a China business expert at the Center for Strategic and International Studies. “Also no one wants to be seen as defending China’s system of surveillance or censorship or lack of reciprocity. So it is very difficult for companies to come out and say the U.S. is in the wrong and China is in the right.”

As tensions between the two world powers intensify, many more companies also find themselves caught up in the firefight. According to a survey released Tuesday by the U.S.-China Business Council, 86% of more than 100 member companies report that the bilateral tensions have caused lost sales or otherwise impacted their businesses in China. “We have been cut out of some bids because we are a U.S. company,” the report quotes one company as saying.

At the same time, according to the survey, conducted in May and June, 83% of the council’s members counted China as either the top or among the top five priorities for their global strategy.

Nearly 70% of respondents expressed optimism about the five-year business outlook in China, and 87% said they have no plans to shift production out of the country. However, in the short-to-medium-term, U.S.-China tensions are leading some to reduce or stop planned investment in China.

“U.S.-China trade and investment supports about 2.6 million American jobs,” said Mr. Allen of the U.S.-China Business Council. “We need to sustain and grow those jobs in future years, while finding ways to reduce conflict in other areas of the relationship.”

Source: Wall Street Journal by John D. McKinnon and Lingling Wei

Corporate America Worries WeChat Ban Could Be Bad for Business Corporate America Worries WeChat Ban Could Be Bad for Business Reviewed by TechCO on 8/14/2020 Rating: 5

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