U.S. Expels WeChat, TikTok From App Stores on China Concern

(Bloomberg) — The U.S. moved to expel the Chinese-owned WeChat and TikTok apps from U.S. app stores as of Sunday, while reserving the right to reverse a ban on TikTok’s video-streaming service once it can hammer out a deal to satisfy national security concerns.Commerce Secretary Wilbur Ross said Friday that the U.S. will prohibit cash transfers within the U.S. related to WeChat and its parent company Tencent Holdings Ltd. Other measures prohibited as of Sept. 20 include distribution, maintenance and updates of WeChat or TikTok through app stores in the U.S.The order doesn’t extend overseas, which had been a concern of some U.S. companies.Ross said that the two apps are being handled very differently. “Americans will still be able to use WeChat for payments in China. WeChat U.S. for all practical purposes will be shut down,” he said on Fox Business. “For TikTok, it’s just upgrades, maintenance and things like that that will be shut down at this stage, the real shut down would come after Nov. 12 in the event there is not another transaction,” Ross said.The Commerce Department restrictions lay out two, largely separate timelines for WeChat and for TikTok, which is owned by ByteDance Ltd. Restrictions for both go into effect on Sept. 20, but prohibitions on companies providing services to TikTok will be extended until Nov. 12, allowing the video app additional time to hammer out a deal with Oracle Corp. that satisfies the Trump administration. If TikTok, Oracle and the Trump administration can come to a deal by Sunday, then the app stores won’t have to kick TikTok out, one person familiar with the matter said.“I can just say our goal is really very straightforward — protecting the American information and data from ending up in the hands of the Chinese Communist Party,” Secretary of State Mike Pompeo said, speaking to reporters from Guyana. And so while we are reviewing the proposal, trying to evaluate if we can successfully achieve those outcomes, that will be our measure.”If the national security concerns are resolved by Nov. 12, the prohibitions on TikTok may be lifted, the Commerce Department said, noting in a press briefing Friday that it took pains not to disrupt ongoing deal negotiations.Oracle shares were little changed at $60 at 11:23 a.m. Friday in New York. Tencent’s American Depositary Receipts were up almost 1% at $67.30.Degraded, Phased OutTencent said it’s “reviewing” the Commerce Department statement. “Following the initial executive order on August 6 we have engaged in extensive discussions with the U.S. government, and have put forward a comprehensive proposal to address its concerns.” Tencent said “the restrictions announced today are unfortunate,” and that it will continue to talk with the government to come up with a long-term solution.U.S. officials said that American users who have the WeChat app on their phone will still be able to use it to talk with family and friends overseas after the ban goes into effect on midnight Sunday. Americans in China will also be able to continue using WeChat. What is changing is that new users won’t be able to download WeChat in the app store and existing users will not receive updates.Also, because Tencent relies on third-party providers to host and send data, users will experience slowdowns and some dysfunction so a message might time out or there will be a temporary outage. Over time, as users can’t update the app, WeChat will be degraded and phased out. However, the order doesn’t go so far as to restrict internet service providers or require them to block access to WeChat in the form of the content firewall that’s in place in China.The Information Technology & Innovation Foundation, a trade group, said the rule puts an “unnecessary burden on U.S. companies,” and that it “puts consumers at risk by cutting them off from software updates including necessary security updates.”Privately, the initial reaction from American businesses was positive because the scope of the WeChat ban has been limited to U.S. transactions — which was the main goal of a coordinated lobbying push leading up to the Sept. 20 deadline, according to people familiar with the matter. Extending a ban to China would have dealt a blow to businesses like Starbucks Corp. and Walmart Inc. which rely on the app for their China operations.Current UsersThe Commerce restrictions place the onus on Apple Inc. and on Alphabet Inc.’s Google to delete both the TikTok and WeChat apps from their U.S. app stores by Sept. 20.Apple and Google are ready to comply with the deadline, after administration officials worked in multiple discussions with the companies to ensure that there’s no risk of confusion as the ban is applied, according to a U.S. official.U.S. officials declined to comment on enforcement penalties, saying that the Commerce Department would work with companies like Google and Apple to protect user data and that it was prepared for any legal challenges that may arise. The U.S. government acknowledges that individuals might find work-arounds to update the apps and that it doesn’t intend to haul a person using WeChat before a federal judge, one official said.The ban won’t immediately impact current users or force them to delete the apps from their phones. In addition to eliminating WeChat and TikTok from app stores, it will cut off access to developer tools, preventing new downloads and subsequent software updates to current users. That, in effect, could render the app inoperable in the long run.Google, Apple, and Tencent didn’t immediately respond to requests for comment.“We disagree with the decision from the Commerce Department, and are disappointed that it stands to block new app downloads from Sunday,” a TikTok spokesperson said. “In our proposal to the U.S. administration, we’ve already committed to unprecedented levels of additional transparency and accountability well beyond what other apps are willing to do.”The company said it would continue its pursuit of a lawsuit against the U.S. Government over Trump’s August executive orders that seeks to “challenge the unjust executive order, which was enacted without due process.”The ban could still impact U.S. companies that allow payment via WeChat and U.S. users who rely on the app to send money to friends and family, since the new restrictions would prevent that. While WeChat has a relatively small footprint in the U.S., with only 19 million daily users, it has more than a 1.2 billion users in China and around the world. TikTok has 100 million users in the U.S. and has been downloaded more than 2 billion times globally.National Security“The Chinese Communist Party (CCP) has demonstrated the means and motives to use these apps to threaten the national security, foreign policy, and the economy of the U.S,” the Commerce Department said in a statement Friday.The Commerce Department held a number of briefings in late August with companies and lobbying groups who scurried to figure out what the potential ban could mean for them, according to people familiar with the matter. Some American tech firms pressed the Trump administration to let them continue to do business with the Chinese firm through their operations in Asia and to allow American citizens to use the apps there.Industry executives telephoned and wrote a flurry of letters — including Apple Chief Executive Officer Tim Cook, who discussed the matter with Wilbur Ross — but Commerce officials reassured them it would be a narrow ban, according to the officials.The restrictions on WeChat were never considered to be a broad ban, according to two U.S. officials, who said that barring businesses from using the popular messaging app in China was not the intention.Trump first announced the restrictions on Aug. 6 and said that details would come at the end of the 45-day timeframe laid out in that initial order.The Treasury Department, ByteDance and Oracle have tentatively agreed to terms for TikTok that would address U.S. national security concerns, Bloomberg reported Thursday. The proposal calls for ByteDance to own most of a ringfenced TikTok, with Oracle, Walmart Inc. and venture capital investors holding a minority of a new company that will pursue an initial public offering in about a year. But President Donald Trump has the final word and has said he doesn’t want the Chinese parent to retain majority control.(Updates with comment from Tencent in ninth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.


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