CEO DailyCFO DailyBroadsheetData SheetTerm Sheet

How Trump’s TikTok ban pushed China’s most independent tech billionaire closer to Beijing

September 10, 2020, 11:30 AM UTC

This is the web version of Eastworld, Fortune’s newsletter focused on business and technology in Asia. Subscribe here to get future editions in your inbox.

The clock is ticking for TikTok, the wildly popular short-video app, and the founder of its parent company, 38-year-old Chinese billionaire Zhang Yiming.

Zhang, a programming prodigy, has long been regarded as China’s most independent, if elusive, tech tycoon. Unlike Alibaba Group’s flamboyant founder Jack Ma, Zhang shuns the limelight, rarely travels abroad, and is not a member of China’s ruling Communist Party.

Last year, when TikTok ran into a political scrape in India, Zhang turned down an invitation to meet with Chinese government leaders offering help, according to Reuters. Instead, he sent mid-level emissaries to assure the solicitous officials his company would sort things on its own.

But now Donald Trump is pushing Zhang into Beijing’s protective embrace.

TikTok’s Trump troubles began Aug. 1, when the president abruptly announced that he intended to ban the app from conducting business in the United States on the grounds that it hoovers up the personal data of millions of Americans. White House officials warned that the app posed a national security threat because, if ordered to do so, TikTok’s parent company, Beijing-based ByteDance, would surrender that data to China’s communist rulers.

TikTok dismissed that suggestion as absurd. Never mind that its primary content is teenage dance videos. Spokespeople stressed that the company was an independent U.S. subsidiary with an American CEO and chief information security officer and servers in Virginia. “We have no higher priority than promoting a safe and secure app experience for our users,” a spokesperson said. “We have never provided user data to the Chinese government, nor would we do so if asked.”

Trump budged, but barely. On Aug. 3, he announced that he would allow TikTok to continue operating in the U.S. if ByteDance could sell the company to American investors by Sept. 15—and, he added, he expected the U.S. Treasury to get a cut of the sale.

TikTok responded by beginning negotiations with potential buyers, the most likely of included Oracle and a rival alliance of Microsoft and Walmart. At the same time, the company filed a federal lawsuit against the ban.

Later in August, Trump signed two executive orders that ultimately extended the deadline for a sale to Nov. 12, just after the U.S. presidential election. Now, Bytedance is reportedly in talks with the U.S. government to avoid a full sale of TikTok’s U.S. operations.

My colleague Adam Lashinsky has opined eloquently in Data Sheet about the shameful and inexplicable eagerness of American companies, who have long complained about China’s brazen theft of American intellectual property, to cash in on a thinly veiled political shakedown. At the very least, a forced sale would compensate Zhang for the business he built. Prices for a potential deal have ranged from $20 billion to $50 billion. But getting a deal of that magnitude done, even by the extended deadline, will be a monumental endeavor.

In China, Zhang has been attacked online as a traitor for even contemplating the possibility of “selling out” to foreigners. Some have compared him unfavorably to Ren Zhengfei, CEO of China’s largest telecommunications manufacturer Huawei, who’s struck a defiant tone in the face of U.S. pressure.

And, if Zhang’s situation weren’t complicated enough, on Aug. 28, the Chinese government stepped into the fray by announcing it had updated and expanded export controls to artificial intelligence technology, a move many experts said could force the sale of TikTok in a form that would make the company far less attractive to buyers—or possibly prevent the sale entirely.

Ostensibly, Beijing’s announcement sends a message to Washington that it will stand up for private Chinese companies. “We want to show all other countries that this is what the Chinese government will do if you bully any of our companies,” a Chinese government source told Reuters.

But it is increasingly evident to Zhang and other Chinese entrepreneurs that there is no one to save them from bullying by their own government. Two days after China’s announcement on export controls, ByteDance issued a contrite pledge to “strictly follow” the new rules.

Paul Triolo, head of Eurasia Group geo-technology practice, shares his insights on U.S.-China tech tensions in this week’s Eastworld Spotlight video conversation. Paul, who is co-author of a fascinating recent report on the “Geopolitics of Semiconductors,” argues that the Trump administration’s latest round of restrictions on the export U.S. chip manufacturing technology is accelerating the division of global technology supply chains into “red chains” and “blue chains”—and pose a potentially existential threat to Huawei.

One other note. In few hours, I’ll host an online conversation with three distinguished Chinese researchers about the global race to develop a vaccine for COVID-19. It’s free, and there is still time to sign up and join us here.

More Eastworld news below.

Clay Chandler

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com

Eastworld news

Biden's Beijing fallout

U.S. Democratic presidential candidate Joe Biden helped open up China to the world. Now, he promises to reform global alliances in a bid to forcefully challenge China’s alleged human rights abuses. “Mr. Biden’s 20-year road from wary optimism to condemnation—while still straining for some cooperation—is emblematic of the arc of U.S.-China relations,” the New York Times writes.

A 'Made in India' vaccine

India is known as the ‘pharmacy of the world’ for its massive generic drug industry, and the country is set up to potentially manufacture billions of doses of a COVID-19 vaccine. But India is also hoping that COVID-19 will be a breakout for its own vaccine development efforts. This week, Fortune’s Naomi Xu Elegant dives into India’s drive to produce a made-in-India vaccine and whether the country’s research and development vaccine efforts will be able to catch up with its drug manufacturing capabilities. Fortune

China’s Clean Network

On Tuesday, Chinese Foreign Minister Wang Yi announced that China will launch a new initiative to set global data security standards. The policy appears to be a direct rebuke to the U.S.’s Clean Network initiative, which U.S. Secretary of State Mike Pompeo launched in August to encourage countries around the world to rid their software and hardware networks of Chinese technology. In a press conference, Wang stressed the importance in developing global data standards, as opposed to those focused on keeping out countries like China, and promoted ideas like cyber-sovereignty, which would give countries full control over their own data. Wall Street Journal

Motherly love

In The New Yorker’s cover story this week, writer Jiayang Fan tells a powerful narrative about what it is like to be the subject of cyber-attacks in Chinese state media while attempting to tend to her ailing mother in a New York nursing home amid a pandemic. Fan’s piece is heartfelt and devastating, and she weaves her own immigration story to the U.S. and her relationship with her mother with what it means to be high-profile Chinese-American journalist who is critical of the Chinese government. New Yorker

Fleeing China

The two remaining Australian journalists in China fled the country this week after Chinese state security agents raided their homes and demanded that they answer questions about Cheng Lei, an Australian national who worked for Chinese state media before Chinese authorities detained her in August. On Wednesday, China suggested the confrontations with the journalists may have been a tit-for-tat measure and accused Australia of raiding the homes of four Chinese journalists in Australia in June. The two Australian reporters wrote about their experiences fleeing China—here's Bill Birtles for the Australian Broadcasting Corporation and Mike Smith for the Australian Financial Review. 

Fairytale gone wrong

The 2020 remake of Disney's Mulan, a Chinese legend adapted into a popular cartoon in the 1990s, was supposed to give Disney a chance to create a blockbuster that would be a major hit in both the U.S. and China. That still may be possible, but the movie’s rollout this week has hit some snags. First, activists in Hong Kong reignited a call for a boycott of the movie due to the star’s stated support of Hong Kong police during the city’s protest movement. Now, movie watchers are criticizing Disney for including state security forces in China's western Xinjiang province in the film's credits. The U.S. has sanctioned public security officials in Xinjiang for interning and suppressing its Uyghur population. CNN

Coronavirus by country

India

In recording roughly 90,000 new cases per day this week, India is now averaging more COVID-19 infections everyday than China has recorded altogether since the outbreak of the pandemic. This week's tallies bring India's caseload to nearly 4.4 million cases, second only to the U.S.’s 6.4 million. Even with such spread, the country doesn’t appear to have the appetite for further restrictions after months of country-wide lockdowns in March and April failed to contain the virus and led to a record 24% contraction of India’s economy. As the Financial Times notes this week, Indian television channels have diverted public attention away from the country’s woes with coronavirus (and escalating tensions with China) to focus on the mysterious death of a Bollywood star. Financial Times

Markets and movers

Nongfu – The Chinese water bottle giant’s Hong Kong IPO this week briefly made its founder Zhong Shanshan the richest man in China. After Nongfu’s successful debut, Zhong is now worth an estimated $50.1 billion. Fortune

Reliance Retail – The retail arm of the Indian conglomerate Reliance Industries raised $1.02 billion from U.S. private equity firm Silver Lake, which will take a 1.75% stake in the venture. Silver Lake also has a 2.1% stake in Jio Platforms, Reliance’s digital subsidiary. Deal Street Asia

Yum China – The Chinese food retailer, which operates KFC, Taco Bell, and Pizza hut in China, raised $2.2 billion in its Hong Kong debut on Thursday. Shares for the company, which has been listed in New York since 2016, fell by more than 4% on Thursday. CNBC

SMIC – The Chinese chipmaker’s stocks tumbled 22% in Hong Kong on Monday amid reports that the U.S. may add it to its entity list and cut it off from critical chipmaking equipment. Fortune

Final figure

70%

President Trump continues to implore U.S. firms to leave China, but U.S. companies seem intent on staying put. This week, the American Chamber of Commerce in Shanghai released a survey that said more than 70% of companies that manufacture in China do not have plans to shift production outside the country and just 3.7% of the companies said that they will shift some production from China to the U.S. Mark Gilbraith, a consultant with PWC in Shanghai, said in a statement that American businesses are hoping to stay out of the politics and want to see the U.S. and China "resolve their outstanding issues quickly." Fortune