Tag Archives: WeChat

Beijing Wants A Cadre Of ‘Reliable And Useful’ Entrepreneurs

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.

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China Mirrors US List Of Unreliable Entities As US Bans TikTok and WeChat

Screenshot of China Ministry of Commerce announcement of the provisions of the Unreliable Entity List, captured September 19, 2020

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.

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A US Ban On WeChat Would Hold Deeper Decoupling Threat

OUR MAN IN Washington passes on this observation: the Trump administration is now escalating its attacks on China’s ability to access US technology and its drive to decouple the Chinese and US technology sectors regardless of domestic costs. Concern about the damage to US business interests has held the administration’s China policy in check up to a point. If that constraint is no longer in place, it would indicate a new adversarial phase in the relationship.

Our man proffers two pieces of evidence.

The first is the cautionary statement issued by the Semiconductor Industry Association, the US chip industry’s trade association, about the much tougher Foreign Direct Product Rule within the US export control regime. This is aimed at preventing Huawei Technologies from not only buying US-made chips but any made by non-US firms that have been developed or produced with US technology, including software. The new rule, the association says, “will bring significant disruption to the US semiconductor industry”.

Part of that disruption will be caused by significantly increased business and compliance costs for technology suppliers who will now have to monitor the entire value chain of their products and services from development to end-user sale. They may find that doing some business is not longer viable, and thus they will surrender those customers to competitors.

The second is the executive order prospectively banning US individuals and entities from using WeChat, the instant messaging app that is central to Tencent’s social media platform.

WeChat is so ubiquitous within China that a ban could make it all but impossible for US businesses to operate in China. The main channel US multinationals use to communicate with their customers, colleagues, business partners and suppliers in China would be cut off.

The order gives the US Secretary of State the authority to identify which transactions are subject to the ban, but does not require him to provide advance notice of his decisions.

How extensive the impact would be will depend on how strictly the order is applied. It is written with a degree of ambiguity that would make a Chinese legal drafter proud, allowing broad administrative interpretation in its implementation whose very uncertainty provides a chilling effect on any who might be affected.

As now written, under the terms of the executive order, the US Secretary of State, currently Mike Pompeo, one of the most bellicose of the China hawks in the administration, could, in theory, decide that, say, Apple installing WeChat on its iPhones in China would violate the order.

Removing the app from the handsets Apple sells in China would kill the company’s sales there. It might also lead Beijing to enact its new regulations that allow for sanctions on foreign companies that limit technology exports to China for political reasons. Sanctions could take the form of retaliatory measures against Apple’s supply chain. That would not be easy to reconfigure in short order for the reasons that we have recently discussed.

This is an extreme but still conceivable example. There is no evidence that the administration is seeking what would be Pyrrhic victories in destroying the Chinese markets of US multinationals. Indeed, there is no indication at all of how the WeChat order would be implemented. Our man’s broader point is that the decision would be political. Should Apple or any other US tech company show open defiance of the administration’s drive to decouple the two countries’ tech sectors, the conceivable examples could suddenly become more plausible.

This, in turn, suggests the determination to decouple is more robust within the White House than is perceived outside it, and that the China hawks now in the ascendency within the administration will grasp every opportunity to push it further.

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China Systematically Cracks Down On The Internet

IT IS EASY to assume that the Cyberspace Administration of China (CAC)’s investigations into three of the country’s leading social media platforms are just a tightening of censorship typically to be expected ahead of the forthcoming Party congress.

Tencent Holdings’ messaging app WeChat, Sina’s Twitter-like service Weibo, and Baidu’s communication forum Tieba face complaints that they have allowed their users to spread terror-related material, rumours and obscenities, breaches of the law that “endangered national security, public security and social order”.

But there is a more systematic effort to control information in play.

The new cybersecurity law that took effect on June 1 and of which the social media platforms have fallen foul as it makes online platforms responsible for the content they carry, is the third piece of recent legislation codifying China’s doctrine of cyber-sovereignty.  The National Security Law and the Anti-Terrorism Law, both passed in 2015, are the other two.

Collectively they form the basis of Beijing’s intended state control of the internet, which, in turn, is part of the greater crackdown on incipient dissent.

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