BYTEDANCE, OWNER OF short video sharing app TikTok, looks set to be rewarded for toeing the Party line amidst the crackdown on tech.
The Financial Times reports that the company is likely to be allowed to go ahead with an initial public offering (IPO) of its shares in Hong Kong later this year or early next.
ByteDance had planned to go public in New York earlier this year but put those plans on hold when told by Chinese regulators to address data security concerns.
It has since been going through the review process and has submitted filings to authorities, the Financial Times reports. ByteDance is hoping that it will get clearance to proceed next month.
It has also denied that the Financial Times report, but with the sort of non-denial denial that suggests that it would not be politically expedient to do anything else.
Last month, Beijing indicated it would require a cybersecurity review of nearly all companies looking to list their share abroad.
Overseas listings have been frozen in effect to safeguard data security in the wake of ride-hailing app Didi Global’s controversial $4.4 billion IPO in New York that the company pushed forward in the face of official objections.
TODAY WAS DEADLINE day for ByteDance’s divestiture of the short-video-sharing app TikTok, or the United States would ban the app. It is not clear where things stand (update: the deadline has been extended) but US President Donald Trump appears to have moved on to a new executive order.
The executive order bans US investment firms and pension funds from buying and selling the shares of 20 Chinese companies designated in June by the Pentagon as having military ties. Eleven more companies were added to the list in August. They are also subject to the investment ban, which takes effect on January 11.
The list includes well known companies such as China Mobile and China Telecom, both of which have US-listed subsidiaries.
US shareholders must sell existing holdings by November next year. If more companies are added to the proscribed list, US investors will have 60 days to divest the shares.
This latest measure is based on the International Emergency Economic Powers Act, which gives the US president wide scope to take actions to protect national security, and is becoming an increasingly favoured tool of the administration to counter China.
It follows confirmation of the arrival of US marines in Taiwan for training exercises. While the word is that this is far from the first time that US forces have trained their Taiwanese counterparts, it is the first time that it has been publicly acknowledged — unlike the big-ticket arms sales which tend to get the full hullabaloo.
Another visit by a senior US government official is also reportedly on the cards.
Taken together, and in the wake of Secretary of State Mike Pompeo’s pumping up of the Quad, this is starting to look like a president leaving a plateful for his successor or piling up his own plate in anticipation of a second term.
Either way, it is unlikely to go down well in Beijing.
WECHAT AND TIKTOK have both secured stays of execution of their US bans: ByteDance’s TikTok by dint of an alliance with Oracle and Walmart that US President Donald Trump has ‘blessed in concept’, whatever that means (probably that it is OK because his friend and Oracle boss Larry Ellison has set it up, even if it does not meet the president’s order that TikTok’s US business be divested to US owners); Tencent’s WeChat thanks to a federal judge in San Francisco issuing a preliminary injunction blocking the Trump’s executive order to shut the app down in the United States.
The tick-tock on TikTok will continue as the deal is yet to be finalised. However, what caught this Bystander’s eye in the WeChat ruling was Magistrate Judge Laurel Beeler’s comments in her written remarks that while the general evidence about the threat to national security related to China regarding technology and mobile technology — the heart of the administration’s argument for the ban — is considerable, the specific evidence about WeChat is modest.
Why this caught this Bystander’s eye was last week’s instructions from President Xi Jinping to the United Work Front Department about the role — and duty — of the private sector and a parallel opinion issued by the Party ahead of the United Front’s work conference on the private sector. The gist of both was the need for tighter Party control over private enterprises and entrepreneurs to focus them on national goals and to create a cadre of within the private sector that is ‘reliable and useful at critical moments’.
This will confirm all the suspicions outside the country that the line between the private and public sectors is becoming ever more blurred and that private ownership of firms does not mean independence from the interests of the state or Party. For Chinese firms operating globally, existing distrust will intensify. The new National Intelligence Law already makes it nigh impossible for them (or any other Chinese firm) to rebuff authorities’ requests that they support national intelligence work.
The new guidance to the private sector will, if anything, widen the scope of how it will be expected to put the national interest ahead of its own. In July, Xi told a symposium for entrepreneurs:
First, I hope everyone will enhance their patriotism. Enterprise marketing knows no borders, and entrepreneurs have a motherland. Excellent entrepreneurs must have a lofty sense of mission and a strong sense of responsibility for the country and the nation, closely integrate the development of the enterprise with the prosperity of the country, the prosperity of the nation, and the happiness of the people, and take the initiative to bear and share the worries for the country.
It remains to be seen how this will play out in practice. In particular, how far will supporting national goals go beyond playing a part in economic recovery from the Covid-19 pandemic and meeting national security obligations? Will it mean playing a directed role in the development of indigenous next-generation technologies and industries that will be needed in a more decoupled world?
Entrepreneurs and firms that understand and adhere to the Party line will likely see significant benefits for their businesses domestically. Foreign firms operating in China will have to find an accommodation with that, even if they are granted some laxity in demonstrating the patriotism that will be expected of indigenous firms. That said, the flip side of a level playing field regardless of a company’s origin is that all firms in China are treated equally.
Next year’s introduction of the 14th Five-Year Plan will provide some clarity. But meeting the plan’s goal of delivering ‘a well-off society‘ will require the innovation of the private sector to be harnessed but not shackled, never an easy balance for industrial policymakers to strike.
IN THE MIDDLE of last year, Beijing announced that it was creating an ‘unreliable entity list’. This mirrored the US administration’s use of its cold-war-era entity list of companies, organisations and individuals Washington held to be involved in ‘activities contrary to the national security or foreign policy interests of the United States’.
Beijing today published the regulations of how its version will work — although not the identities of those companies or other entities that are on it. The list will catalogue any entity that poses a threat or potential threat to China’s sovereignty, national security, development and business interests; and those that discriminate against or harm Chinese businesses, organisations or individuals. Those on the list face sanctions from bans on investment to restrictions on work and residence permits and fines. Those come into effect immediately, although listees may be granted a grace period to set right their alleged transgressions.
The new rules were published the day after the US administration banned downloads and transactions related to two Chinese apps, WeChat and TikTok. The restrictions on downloads of the two apps from the Apple and Google app stores take effect from tomorrow (September 20) as does a prohibition on third-party companies providing services within the United States to WeChat such as internet hosting, content delivery networks or peering services.
The third-party services restriction on TikTok is due to take effect on November 12. The stay is to give time for the administration to review a proposed deal whereby the US enterprise-tech giant, Oracle, will take a minority stake in the US and some other international assets of TikTok to satisfy US national security concerns about the video-sharing app’s use of the data it holds on US citizens.
There was a rush to download the apps from the Apple and Google app stores before the bans took effect. It is unclear what penalties US users of the apps will face if they contravene the bans, although the US Treasury is indicating that neither criminal nor civil prosecutions are likely.
The prohibition on using WeChat and its parent Tencent for messaging and for financial transfers and payments aims further the Trump administration’s desire to decouple the two economies. The app is widely used by US businesses and Chinese expats to conduct business with contacts colleagues and customers in China. It has a reported 19 million active daily users in the United States. The Reuters news agency reports that Tencent has quietly developed an enterprise version of WeChat, rebranded as WeCom to avoid the ban, but which it is keeping under-ther-radar in the United States.
As an aside, Beijing recently granted TikTok’s parent, ByteDance a rare new licence to conduct online payments, enabling its Chinese service to move into e-commerce in competition with Alibaba and Tencent, a revenue stream that is out of the question for its US operation, however the ownership of that ends up.
Tencent has said that it will pursue further discussions with the US government while TikTok took the more assertive line that it will continue to challenge what it calls an unjust executive order. The Ministry of Commerce condemned the bans on both apps, promising ‘necessary measures’ to protect the legal interests of Chinese firms, without saying what those might be. Banning US apps in retaliation is not an option as they are already mostly excluded from China.