Yahoo Finance America’s biggest companies fear being locked out of China after Trump WeChat ban
Some of America’s biggest companies face being locked out of the Chinese market after Donald Trump’s shock decision to ban the use of WeChat.
US titans including Starbucks, KFC, Disney and McDonald's today faced questions over whether the White House move could hamper their Chinese presence, given the prevalence of WeChat’s contactless payment technology in the country.
The market has become increasingly crucial for these companies after reaching saturation in Western regions. KFC, for example, has more than 5,000 restaurants in China, and in 2018 was using WeChat to cut down waiting times for customers. At Disney’s Hong Kong park, customers can pay for items via the app, whilst Starbucks partnered with WeChat in 2016.
Tencent’s WeChat Pay is used as an alternative to cards or cash for hundreds of millions of consumers in China. Users can pay in stores or send money to friends with QR codes generated by WeChat’s app, as well as using its technology for online payments.
A ban on US firms using the app could put tech firms including Apple at risk losing swathes of customers. Some experts said the ban could mean the smartphone maker would be required to delete WeChat and WeChat Pay from the iOS store.
“If you can’t pay for Starbucks coffee on WeChat, people will stop drinking it,” said BOCOM International analyst Connie Gu, commenting on the extreme cases where American brands are banned from using WeChat as a payment method.
Apple made more than $13bn (£10bn) in revenues in China last year, but many consumers use WeChat as their primary form of messaging and payment and could be put off buying a device without it. Apple and Mcdonald's declined to comment. KFC, Disney and Starbucks did not respond to requests for comment.
WeChat, and its Chinese equivalent Weixin, have a combined 1 billion users, but have long been criticised for censoring posts and messages in China and for submitting to demands for information about users from the Chinese state.
Neil Campling, head of TMT at Mirabaud Securities, said: “US companies will be scrambling their lawyers to work out the implications. WeChat is an essential channel for not just communications but also for brands to get access to consumers.
“Mr Trump risks cutting off that whole area of growth for many corporates.”
His concerns were echoed by legal experts, who warned that US companies were too closely linked to their Chinese entities.
One expert said many US firms did not "ringfence" their Chinese operations and many would be "encouraged" to comply.
On Friday, it was not yet clear how far the ban would go, with the wording of the executive order against WeChat sparking some confusion.
When Mr Trump first unveiled the two executive orders, against both WeChat and TikTok, on Thursday, many had assumed it also included their Chinese owners Tencent and Bytedance, although US officials later clarified that only the two apps would be subject to the bans.
Shares in Tencent slumped by $30bn (£23bn) when the ban was announced.
A spokesperson for the company said Tencent was reviewing the executive order to get a full understanding. A TikTok spokesperson said the order “set a dangerous precedent” and it would be considering legal action.
While the threat of a ban rattled Tencent shares, many US technology social media and internet companies, including Facebook, Google and Twitter, are barred from operating their services in China.
Experts said the wording of the executive orders, which require US firms and citizens to stop doing business with WeChat and TikTok within the next 45 days, suggested they could map across different industries, and affect not only how the apps operate in the US but also the ties US firms have to China.
Jason Hungerford, a partner at the law firm Mayer Brown, said: “Given that the order covers ‘any’ transaction, we would expect the prohibitions to be broad.”
The WeChat announcement came as the White House laid out a further plan for a so-called “clean network” in the US. Secretary of State Mike Pompeo laid out plans with the aim of removing “untrusted” Chinese telecoms providers and smartphone apps.
The Trump administration added it expected Apple and Google to remove “threats” such as WeChat and TikTok, from their app stores.
