November 18, 2019 / 10:20 PM / 18 days ago

Breakingviews - TikTok has escape route that Huawei lacks

The logo of TikTok application is seen on a screen in this picture illustration taken February 21, 2019. Picture taken February 21, 2019. REUTERS/Danish Siddiqui

SAN FRANCISCO (Reuters Breakingviews) - TikTok and Huawei Technologies have a common predicament. The Chinese-owned video app and its telecom compatriot are both under fire from U.S. lawmakers who fear political meddling. TikTok may have fewer allies to lobby on its behalf, but its $75 billion owner ByteDance could sell or spin its subsidiary off. Huawei, though, is in a long-term trap.

The firms are in a no-win situation. TikTok boss Alex Zhu told the New York Times that if Beijing demanded data on users of the app known for its 15-second viral videos, he would say no. Huawei founder Ren Zhengfei, a former Chinese soldier, has also said he wouldn’t help his country spy on America. But it’s difficult for either to prove it – or to allay fears Beijing would find a means anyway. Members of Congress have called on parents to delete TikTok; the U.S. government has lobbied other nations to stop using Huawei.

Huawei at least has powerful friends, since it buys from American chip suppliers like Qualcomm and Intel. While Huawei remains on an export blacklist, the Commerce Department on Monday allowed certain U.S. companies to continue doing business with it. Huawei could also form part of a broader trade deal the White House is trying to forge with China.

But when it comes to finding an escape route, TikTok’s odds look better, because it could be spun or sold off. It has around 1.5 billion monthly active users. At the same $9 million per user that ByteDance paid for lip-sync app Musical.ly in 2017, TikTok could be worth $13.5 billion – easily large enough to sustain a public market listing. TikTok doesn’t really have Chinese users and stores its U.S. data within America’s borders, so there’s little lost by setting it loose.

Huawei would be much harder to de-sinicize. With annual revenue of $105 billion in 2018, it’s not exactly bite-sized. And while TikTok’s sweeping popularity makes it a target ahead of an election year, worries about Huawei as a national security threat and 5G competitor are bipartisan, and likely to endure beyond the Donald Trump administration.

Getting rid of TikTok would be a bitter pill for ByteDance. But at least it’s an option, if the scrutiny becomes too much. Huawei will find it harder to escape the uncomfortable spotlight.

Breakingviews

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