Erste Asset Management

Trump declares war on Chinese companies behind TikTok and WeChat

Trump declares war on Chinese companies behind TikTok and WeChat
Trump declares war on Chinese companies behind TikTok and WeChat
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US President Donald Trump has escalated his fight against the Chinese-owned social media services TikTok and WeChat, and in the process also caused new tensions in the trade dispute with China. The Republican recently issued orders prohibiting transactions with TikTok operator ByteDance and WeChat owner Tencent, which are to become effective in 45 days.

With these measures, Trump is targeting two services extremely popular in the US. With around three million users in the USA, most of them Chinese, WeChat is a successful competitor to WhatsApp. WeChat operator Tencent also holds 5 per cent of electric car manufacturer Tesla and 12 per cent of Snapchat’s parent company Snap in addition to holding shares in the music streaming service Spotify and the world’s largest music label Universal Music.

TikTok is an internationally successful video platform with hundreds of millions of users around the world. Users can upload and edit their own clips or watch videos from others. The network has increasingly grown into a platform for political debates and campaigns in the USA, which is likely a further thorn in Trump’s side. The app has around 100 million users in the US and is particularly popular with teenage users there, six out of ten of which now use TikTok. This is the result of a survey conducted every six months among 5,200 teenagers by the US investment bank Piper Sandler.

The US government has been alleging the danger of data from US citizens using TikTok falling into the hands of Chinese authorities for some time. TikTok assures users that the Chinese government has no access to user data and has never requested it. However, President Trump has recently threatened to ban TikTok altogether, citing data security reasons. He continues to see the danger of espionage and political influence from Beijing, but has no objection to the platform continuing to be operated under an American owner in the US. If, however, no sale to a US company is concluded by 15 September, the ban will come into effect.

Microsoft preparing to take over TikTok’s US business

As a result of political pressure from the White House, Microsoft has made preparations to take over TikTok’s US business. The software giant wants to negotiate a deal with TikTok owner ByteDance by mid-September. According to insiders, Bytedance itself agrees to a complete sale of the platform’s US business after Trump’s announcement of the ban.

In response, Trump has demanded that the US government receive a share in the profits from a possible takeover of TikTok’s North American business by Microsoft. After a conversation with Microsoft CEO Satya Nadella, Trump reported that he told him that “a very substantial portion” of the sale price would have to go to the US Treasury, “because we make this business possible”. Several US media spoke of unusual interference without precedence in recent American history.

In China, these plans were met with massive criticism. The Chinese government accuses Trump of “intimidation”. His threat to ban the company in the USA is “plain and simple intimidation”, said a spokesman for the Chinese foreign ministry. Chinese TikTok users have also announced that, should the company be sold to Microsoft, they will uninstall services such as Twitter competitor Weibo, the video app Douyin, and the news platform Jinri Toutiao. American TikTok users have also recently protested massively in social media against Trump’s plans to ban the service.

However, after the recent ban on business with ByteDance and Tencent, talk of selling the US business has subsided, rendering that point moot. After ByteDance had been open to a sale of the US business, Trump now also scared off the TikTok operator with his latest decree. TikTok announced that it would take legal action against a ban by the US government.

More fuel on the trade war’s fire

With the hostilities thus opened, the US President also reignited the trade dispute between the USA and China, causing concern in stock exchanges around the world: “We could see the beginning of an IT war,” said Nana Otuki, Chief Analyst at Monex Securities. IT expert James Lewis of the Center for Strategic and International Studies is certain that “China will retaliate”. He sees a new dimension in the long-running dispute between the major powers: “This is a rupture in the digital world between the US and China.”

For a good two years now, the trade war between the world’s two largest economies has been raging, with a trade agreement signed in January only providing a temporary respite. Since the outbreak of the Corona pandemic, the tone has become sharper again. Critics suspect that the campaign against the Chinese apps is also a political move by Trump to divert attention during the hot phase of the election campaign from the corona crisis at home and the severe slump in the US economy with millions of citizens unemployed.


Erste AM equity funds for technology-companies

ERSTE STOCK TECHNO – this equity tech fund was launched in 2000 and invests in companies from developed technology markets. The majority of companies in this area can be found in the United States. As a result, Pacific and European equities tend to play a subordinated role in the fund.

ERSTE FUTURE INVEST –  is an actively managed, global equity fund investing in megatrends (promising future trends). Equities associated with one or more of the following trends are preferred in the selection process: health and health provision, lifestyle, technology and innovation, environment and clean energy, and emerging markets.

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Prognoses are no reliable indicator for future performance.


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