Commentary on Political Economy

Monday, 3 August 2020

Why TikTok owner ByteDance is no Huawei for Beijing

TikTok app
ByteDance makes news and video apps that are a source of concern for China’s censors © Alex Plavevski/EPA/Shutterstock
Given Beijing’s readiness to threaten countries blocking Huawei’s 5G technology, it would be easy to presume Beijing has retaliation in mind for Washington for forcing TikTok’s Chinese owner to sell the app’s US operations. In reality, ByteDance is not another Huawei and Beijing is unlikely to defend the company, said Chinese tech industry players.
“Most people in China would laugh at the idea that ByteDance works closely with the Chinese government,” said a Chinese technology industry executive who has worked with ByteDance founder Zhang Yiming.
Huawei is much more important than ByteDance for the domestic economy, on which the Communist party has built its legitimacy. Huawei made the cell phone masts that supported China’s mobile tech revolution, and indirectly employs legions of factory workers.
ByteDance, on the other hand, makes news and video apps that are a source of concern for Beijing’s censors. While it is one of the few companies that has kept hiring during the Covid-19 pandemic, it mainly hires elite graduates in big cities.
“Bytedance’s relationship with [the] Chinese government is not good at all: they find it very hard to control this kind of social media platform,” said Li Chengdong, chief executive of tech-focused think-tank Haitun.
“They are not a strategically important company,” added Mr Li. While Huawei is a 33-year-old “national champion”, ByteDance is a relative newcomer. Its founder lacks a seat on the national political advisory body, unlike his more established peers at Baidu and Tencent.
The US sanctions against Huawei are also much more life-threatening for the company, which relies on the global chip supply chain. More than 60 per cent of Huawei’s revenues come from overseas. By contrast, ByteDance is spending its China profits in order to expand in the US, where it is not yet profitable.
By building Huawei into their networks, countries are locked into an ongoing economic relationship with China, which suits Beijing. But while TikTok’s algorithms have made it go viral globally, ByteDance does not engender strategic dependence. It is much easier for the world’s teens to find another internet craze than for governments to rip out their telecoms infrastructure.
The result is limited impetus for Beijing to fight back. Beijing is guarding more important interests: supporting the economy and foreign demand for its goods. The high-stakes US presidential campaign, filled with anti-China rhetoric, makes it less safe for Beijing to play a game of escalation.
“Beijing is not going to open another battlefield against the US on ByteDance,” said Feng Chucheng, a political risk analyst and partner at the independent research firm Plenum. “The issue also touches on the US elections, arguably the most sensitive topic in the US right now, which China doesn’t want to be perceived as meddling in”.
Even if there were the appetite, there are few US tech targets left for China to strike against. Facebook, Twitter, and Google’s YouTube — Bytedance’s main competitors — are already banned in China, although they do sell advertising to help Chinese companies reach foreign customers.
Microsoft, which is in talks to buy TikTok operations in the US, has long been on good terms with Beijing. The company has been an incubator for China’s tech talent, including briefly Mr Zhang. For now almost 90 per cent of China’s computers run Microsoft Windows. Beijing has sought to try and replace Windows with a domestic equivalent, starting with government procurement contracts. But analysts reckon the replacement will take years. Meanwhile Microsoft remains welcome in China.
One of the consequences of Bytedance’s forced sale to the US — beyond its market capitalisation — is the indirect harm to Chinese entrepreneurs, who see their global prospects shrinking.
One such founder, James Liang of travel site Ctrip, posted an article arguing that, in response to the US’s decision over TikTok, China should take the high ground and open up its internet. The message was promptly censored.
“Chinese start-up founders do not want an alliance with China’s government. They just want to create something big and make a fortune,” said the Chinese tech executive who had worked with Mr Zhang. “Since the Communist party tightened its control at home over the past few years, those entrepreneurs looked to foreign markets. Now they have few places left to go.”
Additional reporting by Nian Liu

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