One afternoon in April 2018, Zhang Yiming, founder of Beijing-based online media company ByteDance, received a notice from Chinese regulators to shut down an app where people share jokes and silly videos. .
He complied with the order and expressed deep remorse in a public apology. “I regret that I have failed the guidance and expectations of the supervisory authorities,” he said.
Zhang promised nine corrective measures. At the top of the list is increasing the Communist Party’s presence at ByteDance and educating employees to think in terms of the party and the government.
ByteDance, which owns TikTok, is currently facing a similar order from the U.S. government. The short video app needs to be sold or it will face a ban. They are fighting back in US courts.
It was once thought that Chinese companies operating overseas could act obediently to the Chinese government in exchange for survival, while also enjoying the protection of private rights and the rule of law in the United States.
But as mistrust deepens between the world’s two superpowers, cracks are appearing under Chinese companies like ByteDance. Companies are caught between their own authoritarian governments and an increasingly suspicious and even hostile U.S. government.
TikTok and other Chinese companies that are thriving in the United States, such as Temu and Shein, are multinational companies run by Chinese owners. The Chinese-owned label became a burden. That’s something that’s keenly felt by everyone in China’s business community, who are seeking opportunities beyond the country’s meager economy.
TikTok’s challenges in Washington are an example of what many Chinese entrepreneurs and investors are facing abroad as the country’s business environment worsens under the leadership of President Xi Jinping, who favors state-owned enterprises.
According to China’s Ministry of Commerce, Chinese investors poured $130 billion into about 8,000 companies around the world in 2023. This represents an approximately 8% increase in investment and a 38% increase in the number of companies compared to 2018.
“The business community is very concerned about where and what they can invest in outside China,” said Ding Xueliang, a former professor at the Hong Kong University of Science and Technology who studies globalization and sociopolitical processes in China. He speaks to Chinese entrepreneurs, sometimes hundreds at a time, who want to know whether their companies could be exposed to national security surveillance in developed countries.
“The roads are getting narrower and the hills are getting steeper,” he said.
The difficulty, they say, is that the United States has good reason to doubt whether TikTok can truly be independent from the Chinese government. Chinese companies and entities owned by Chinese companies cannot say no to the Chinese government’s demands. Doing so puts the officer’s personal and business assets and the safety of the officer’s family at risk. The way ByteDance founder Zhang responded to the 2018 government order is typical.
The ambiguous reality of doing business in China makes it difficult for the outside world to distinguish between companies and the Chinese government.
Some companies, particularly online platforms like ByteDance, are contributing to the Communist Party’s tightening of control by increasing censorship and spreading propaganda. Businesses have benefited from close ties to the government, which is difficult to avoid in a country where the state owns so much of everything.
A former ByteDance and TikTok project manager who left last year said the problem with ByteDance is that ByteDance wants to go both ways, identifying himself only using his last name Sue. asked to do so. He said ByteDance functions as an arm of the Chinese government’s propaganda machine while enjoying the benefits of a free and democratic world abroad.
TikTok has more than 1 billion users worldwide, including 170 million in the United States. Although not available in China, ByteDance offers a similar short video app, his Douyin. The U.S. government is concerned that the Chinese government could rely on ByteDance to access sensitive user data and spread propaganda. TikTok denied those concerns and said it had taken steps to store U.S. user data in the United States.
But most Chinese companies in the private sector, like their American counterparts, want a level playing field so they can go where the money is. That goal faces increasing scrutiny and uncertainty.
A Chinese businessman in self-imposed exile in another Asian country said his country’s government had blocked him from investing in semiconductor companies, citing national security concerns. He ended up investing in the hospitality industry. He is unable to return to China for fear that the authorities will punish him for his blunt statements, while his money is not welcome in the country he is staying in because he is Chinese. do not have.
Most of the people I interviewed asked to remain anonymous for fear of retaliation from Chinese authorities. Some of them asked not to mention the names of their countries or cities in China.
In Silicon Valley, startups focused on artificial intelligence, semiconductors and other cutting-edge technologies are avoiding Chinese investors or telling existing Chinese investors to leave. They do not want transactions involving foreign investment to undergo the government review that the U.S. government requires.
Some American politicians talk about the distinction between the Chinese Communist Party and the Chinese people, but in reality they are poor about it.
During a Senate hearing in January, Republican Sen. Tom Cotton of Arkansas repeatedly asked TikTok CEO Shou Chu about his citizenship. “What country are you a citizen of?” he asked. Also, “Have you ever applied for Chinese citizenship?” The answer was Singapore and no. I can’t imagine what the ensuing questions would have been if Mr. Chu had been a Chinese passport holder like me.
As my colleague Amy Chin reported this month, many Chinese nationals are legally barred from buying homes in Florida due to national security concerns. More than 30 states are considering legislation that would ban Chinese nationals and entities from buying or owning real estate.
All of this has a chilling effect on Chinese investment in the United States. New investment has slowed slightly, according to research firm Rhodium Group. Chinese new investment in the United States fell to less than $5 billion in 2022, down from $46 billion in 2016. China has fallen from the top five of U.S. investors to the second tier, surpassed by countries such as Qatar, Spain and Norway, Rhodium Group writes.
Chinese venture capitalists no longer come to Silicon Valley to scout the hottest startups. They now run into each other in Abu Dhabi or Riyadh.
That doesn’t mean the U.S. is wrong to be cautious about Chinese investment, academics and lawyers said. Scholars who have studied China’s internet industry for decades say that as the Communist Party makes national security a top priority and the world retreats from globalization, democracies need to reflect on their principles and practices. He said there is. This process will expose many inconsistencies and vulnerabilities that adversaries can exploit, she said. Countries must decide how to balance openness and security.
Because online platforms like TikTok have so much influence, it’s no surprise that Chinese ownership would become a sensitive issue in the United States, the academic said. In China, this problem would be resolved with a phone call from the government. Due process in America can take years.
