Last week, U.S. President Donald Trump signed a pair of executive orders banning the apps WeChat and TikTok from the U.S., arguing that the Chinese-owned apps pose a national security risk to the United States.
“[WeChat’s] data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information,” the WeChat order states. The Chinese government has denied allegations that WeChat and TikTok feed user data to central authorities.
The U.S.’s decision to ban TikTok, a video-streaming platform owned by the Chinese firm Bytedance, arguably has garnered more attention due to the app’s popularity among American users. But Trump’s ban of WeChat, a messaging app owned by the Chinese company Tencent, is the one worrying large U.S. companies.
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In China, WeChat is not just a messaging app but a vital part of daily life. For the app’s 1.1 billion users, it’s Facebook, WhatsApp, Uber, Postmates, Amazon, Expedia, and a mobile wallet all rolled into one, with additional mini programs that host dozens of other functions.
On Thursday, the Wall Street Journal reported that a group of U.S. companies including Walmart, Apple, Disney, and at least nine others raised concerns to the Trump administration that the WeChat ban could undermine their ability to do business in China.
The White House hasn’t clarified whether the ban will be applied to U.S. companies operating in China, and companies may not find out until September when U.S. Secretary of Commerce Wilbur Ross identifies which transactions will be covered by the order. As it stands now, however, the ban threatens to cut off an indispensable tool for any American business operating in China.
How exactly do U.S. companies use WeChat in China? Walmart, the retail giant that’s No. 1 on Fortune‘s Global 500 list, provides a good example. It’s part-customer relations platform, part-mobile payment system, part-e-commerce site, says Yuwan Hu, research director at Daxue Consulting in Shanghai.
When Walmart posts on its public WeChat account, the messages regularly attract hundreds of thousands of views, a figure that indicates the company has a “large base” of WeChat followers in comparison to other brands, Hu says.
The company has also built its own mini-program on WeChat. It allows consumers to place orders for delivery from home and scan and pay for items when shopping in stores through WeChat Pay, the app’s mobile payment system. In 2019, Walmart said 30% of all its transactions in China came via WeChat Pay.
Ultimately, losing those functions could reduce Walmart’s competitiveness amid stiffening competition, Hu says. Rivals include Alibaba’s Hema supermarket chain, which launched in 2018, and more established Chinese retailers like Haorun Wanjia and Lianhua.
Walmart did not respond to Fortune‘s request for comment.
“Chinese consumers are not as loyal as Western consumers,” says Hu. “If a service doesn’t meet their expectations, they will switch to other retailers or providers that [offer] better quality service.”
In fact, Chinese customers are loyal—to WeChat. And that’s at the heart of the problem for U.S. firms; consumers in China would rather ditch a retailer or service provider than give up WeChat’s all-encompassing ecosystem.
A recent, unofficial survey conducted on Weibo, a Twitter-like platform in China, found that 95% of users wouldn’t buy a phone that didn’t have access to WeChat. The results no doubt caught the attention of Apple. If the U.S. ban means Apple is no longer able to offer WeChat on its devices, the company’s China business, worth some $44 billion, is at risk.
If companies are cut off from WeChat, they can replicate some of its functions elsewhere, but other aspects of the app are harder to replace.
WeChat Pay, for example, can be swapped in many use cases for its main competitor Alipay, the mobile payment arm that is associated with Chinese tech giant Alibaba. Retailers usually offer both services, says Chelsea Tam, a Tencent analyst at Morningstar, but availability varies across regions and retailers. In 2018, for instance, Walmart signed an exclusive relationship with Tencent that saw it drop Alipay and only use WeChat Pay for mobile payments in Walmart’s stores in western China.
It would be harder for companies like Walmart, Apple, Nike, and Costco to replace the megaphone of their public WeChat accounts or the seamlessness of mini-programs that operate within the larger WeChat environment. Again, Alibaba is the closest alternative; it supports mini-programs and online stores for specific companies, says Tam, but as of now WeChat’s ecosystem “completely dwarfs” Alibaba in number of mini-programs and people who use them.
Tencent launched its internal WeChat mini-programs in January 2017, getting a year head start on Alibaba, which launched a similar service on Alipay in July 2018. Mini-programs rapidly expanded on both platforms. By June 2019, the Chinese research firm QuestMobile found that WeChat had over 2.3 million mini-programs while Alipay had 200,000. The report also found that WeChat mini-programs had nearly 700 million monthly active users in June 2019 compared to Alibaba’s 400 million.
Ultimately, no other apps can match WeChat’s reach and marketing power in China, says Jeffrey Towson, a private equity investor and finance professor at Peking University in Beijing. “WeChat is the primary mechanism for reaching and engaging with Chinese consumers,” he says.
The untold cost of losing such a tool is why U.S. companies are “encouraging Washington to think through [the ban] a bit more,” says David Ahlstrom, management professor at the University of Hong Kong.
The U.S. government still has to explain the scope of Trump’s order and specify whether the WeChat ban will only cover users of the app in the U.S. or also apply to U.S. companies using the platform in China.
The order states that “any transaction that is related to WeChat” will be off-limits for any U.S. resident, citizen, or “entity organized under the laws of the United States.”
Dan Wang, a technology analyst at the research firm Gavekal in Beijing, says that, as it’s written, the ban allows the U.S. government to “limit the interactions” of U.S. companies with WeChat, which suggests that cutting American multinationals in China off from the platform is certainly within the range of possibilities.
WeChat’s owner, Tencent, says it expects the U.S. to interpret the ban narrowly. In an earnings call on Wednesday, Tencent Chief Financial Officer John Lo said the ban “very clearly” specifies that it would only apply to the U.S. “Consequently we don’t see any impact on companies advertising on our platform in China,” Lo said.
But in a speech in Prague on Wednesday, U.S. Secretary of State Mike Pompeo hinted at a looser interpretation of the WeChat and TikTok bans. “If you read [the bans], it’s broader even still than that,” he said. “We’re going to make sure that American data does not end up in the hands of an adversary like the Chinese Communist Party.”
Towson says he ultimately expects the White House to make exceptions on the WeChat ban for U.S. businesses operating in China as it would “make no sense” for the U.S. to so thoroughly undermine American business interests in the country.
The U.S. says it will start enforcing the WeChat and TikTok bans on Sept. 20. It’s possible that until then, U.S. companies and even individual citizens who rely on WeChat in China may exist in a state of uncertainty.
“I use [WeChat] 50 times a day,” says Towson. “As an American citizen in China, I’m not totally sure what this ban means for me.”
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