The banning of short video sharing app TikTok in the US has hit several Chinese tech giants hard as Donald Trump escalates a growing cold war between the two countries.
An executive order from the president says US firms must stop doing business with the app within 45 days, citing concerns that the app is harvesting data which can then be used by Chinese spy agencies, threatening national security. TikTok has denied claims that the Chinese government has access to its user data.
TikTok has around a billion users and is owned by ByteDance, which also runs Chinese news platform Toutiao and is one of the country’s largest technology firms with a value of around US$100bn.
The platform is currently in discussions with Microsoft Corp (NASDAQ:MSFT) to sell its US operations, however Trump has said the companies have until September 15 to reach a deal.
The platform may also take legal action against the US government to protest the ban, saying it wanted to “ensure the rule of law is not discarded”.
IG's chief market analyst Chris Beauchamp said a successful sale of TikTok's US arm by ByteDance, one of its most valuable businesses, "is not likely to help ByteDance’s quest for a generous market valuation when it does eventually go for an IPO".
"Investors are likely to take a dim view of any move to sell TikTok to a competitor, no matter how necessary it may be. For a while, ByteDance seemed to be well-placed to push forward in a post-Covid world. While the grey market dropped sharply at the time of huge market volatility in February, there was a clear read-across to the firm from other big tech stocks, which were huge beneficiaries of the enforced lockdown", Beauchamp said.
“But since then the price has come back down, as IG clients began to view the US$200bn price tag as too rich. Increasing US-China tensions also played a part, but almost all the post-February gains have now been given back as talk of a TikTok sale dominates financial media", he added.
Trump has also issued a similar order against social media and messaging app WeChat, owned by fellow Chinese tech giant Tencent which saw its shares on the Hong Kong Stock Exchange lose around 5% of their value in Friday’s session following the news.
The developments follow recommendations from the White House on Thursday that Chinese firms listed on US stock markets should be delisted unless they allow regulators to access their audited accounts.
“Much like Huawei and ZTE, TikTok has become part of the geopolitical cold war between the US and China…What actually happens with TikTok is less important than the fact Trump went after the company – a soft way to attack China via a service that is becoming an increasingly prominent part of American teenage life. Though it isn’t as traditional as closing the consulate in Houston, it is another needling move by the President ahead of November’s election, designed to draw focus away from domestic issues”, said Connor Campbell at Spreadex.
Given a recent spate of ‘tit-for-tat’ exchanges between the two nations, it is expected that China will react against the ban in some form, although most of the US’s own tech platforms including Google, Facebook and YouTube are already banned in the country.
The banning of WeChat is also likely to spell trouble for users that use the app to communicate to individuals inside China, closing another channel of communication between the populations of the two superpowers.
--Adds analyst comment--