Smith Brain Trust / August 26, 2020

TikTok’s Ban and What It Means for Chinese Globalization

Are we seeing a ‘parting of ways’ of the digital economies?

TikTok’s Ban and What It Means for Chinese Globalization

SMITH BRAIN TRUST  TikTok, the popular short-form video app dubbed the “most valuable startup” in 2018, is being targeted as a threat by President Donald Trump. In a recent pair of executive orders, Trump banned TikTok and WeChat from operating in the United States if they aren’t sold within 90 days by their Chinese parent companies.

The orders point to the extent that TikTok captures user data – browsing and search history, behavior on the network, location information and so on – and raises the possibility that such data could be turned over to the Chinese government. They also cite TikTok's censoring of content to align with Chinese government interests.

“Some of these concerns are not unique to the Trump administration,” says Kislaya Prasad, research professor and academic director of the Center for Global Business at the University of Maryland’s Robert H. Smith School of Business. “India recently banned TikTok, WeChat and numerous other apps, and people in other countries have spoken to the information security risk that these apps pose.”

TikTok has insisted that data gathered in the United States stays in the United States. It says it doesn’t share data with the Chinese government, and that its servers are positioned outside China. That prompts a question, says Prasad: “Is there something beyond the stated reasons for the Trump administration’s policy?”

“There are a number of people on Trump's team that would like to disengage economically from China, because of a variety of grievances, and it is possible that Chinese tech firms make a convenient target,” he says.

“Another possible reason could be to deflect from the coronavirus situation in the U.S., for which Trump wants to hold China responsible. “Still, the most important reason remains fundamental differences between the U.S. and Chinese tech models – especially as it pertains to access to, and control of, data and information.”

In the following Q&A, Prasad further discusses the implications of the recent U.S. pressure on TikTok and WeChat, including what it means for Chinese globalization.

Q: If the U.S. action against TikTok and WeChat means the digital economies of China and the United States are creating closed-loop systems, to what extent will the two sides’ evaluation of information and ‘facts; diverge? Can there still be a common language in this context?

Prasad: I believe there is something to this ‘parting of ways’ of the digital economies narrative. But, for proper context, this isn't beginning here and now. China's restrictions on Google, Facebook and Twitter have meant that many U.S. tech companies have been shut out of the Chinese internet. But certainly, this deepens the divide. At this point, it looks like there will be two different ecosystems. The fundamental division will be over state control of data. And it will be very difficult to operate in both systems. There will be a divergence, but they'll still be varieties of the same thing. It is very hard in today's world to shut out ideas. I am sure ideas and innovations will spill over from one ecosystem to the other. It will not be the same thing as free and open Internet, but I don't foresee a complete separation either.

Q: Some say the U.S. suppression of the likes ZTE and Huawei and now TikTok indicate the United States perceives rising China companies as a threat. How real is this perception?

Prasad: There is a realization that technology is a key component of the strategic competition with China. And I think people were somewhat surprised with the pace at which China caught up. At the heart of the actions against Huawei is the 5G market, which Huawei dominates. I think TikTok is less about a critical technology. It points to other contested areas, such as the new security law in Hong Kong, and the South China Sea. Without minimizing what I said earlier about information security risks, I think TikTok just happens to be a convenient target – a victim, perhaps, of its own success. All of which suggests that the issue is more complicated than just narrow competition in the tech field, and the strength of China's tech companies. Geopolitical issues also have a bearing on the actions being taken by the Trump administration.

Q: How does the pressure on TikTok and WeChat foretell challenges ahead for Chinese internet companies?

Prasad: It is instructive here to reflect on India’s banning of TikTok and WeChat (among several other products). This was in response to a border skirmish with China, where 20 Indian soldiers were killed. India was a major market where Chinese tech firms such as Alibaba had invested a lot of money. They were competing with Silicon Valley, and possibly had the upper hand. Their position in the Indian market now appears to be at risk. So Chinese companies face geopolitical risk.

But prior to these events, I would have pointed to China’s success in India – not just TikTok, but local startups like Paytm, Zomato, etc. that Chinese companies invested in – and said that Chinese companies have a definite advantage in emerging markets where they can expand their ecosystem. In the long run, I think that is still the case, and Chinese tech can give Silicon Valley a run for the money in these markets. In the West, information security will continue to be a major issue. Chinese tech firms will have to find reliable arrangements (e.g. where data is stored, under which set of laws) that will attenuate some of these concerns. I think Chinese companies are starting to do so now – keeping data servers in places where they are not subject to Chinese laws, etc. And if trust is built by such steps, some of the concerns may abate.



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