There is no doubt that WeChat is one of Tencent’s core businesses, but in the US market, WeChat is not Tencent’s most valuable asset. In Tencent’s latest financial report, the direct revenue from the US market accounts for less than 2% .
According to data provided by data analysis company App Annie, WeChat had only 3.3 million monthly active users in the United States in August this year, and it did not even rank among the top ten in the US IM application market. Like Japanese people who like to use Line and Korean people who like to use KakaoTalk, WeChat is also the preferred IM application for Chinese Americans. The core user base of WeChat in the United States has always been more than 5 million Chinese, and there is still a significant gap between Facebook Messenger, Snapchat, and WhatsApp used by mainstream users.
Obviously, WeChat is by no means the only target for the US government to target Tencent. According to US media reports over the weekend, the Committee on Foreign Investment in the United States (CFIUS) has sent letters to two well-known game developers-“League of Legends” developer Riot Games (Riot Games) and “Fortnite” developer Epic Games, asking them to submit Relevant information to protect the data security of US users. Following WeChat, the US government has targeted Tencent’s investment business in the United States.
Riot Games is an American game developer headquartered in Los Angeles, but it is a wholly-owned subsidiary of Tencent. Tencent started investing as early as the second round of financing of Riot Games in 2009, and then continued to increase its shareholding ratio, and finally acquired all the shares of Riot at the end of 2015 . Tencent holds a 40% stake in Epic Games and is a major shareholder , but not the largest shareholder. It can nominate director seats. But Epic publicly clarified last year that they do not share user data with Tencent, and their business is not affected by Tencent. Epic is currently engaged in a litigation battle with Apple to challenge the control hegemony of the Apple App Store.
Obviously, the US government is strictly reviewing Tencent’s investment assets related to US user data. These two companies are two American game developers in which Tencent holds major shares. In addition, American game companies invested by Tencent also include Activision Blizzard (holding 5%), Glu Mobile (holding 15%) and so on. American technology companies in which Tencent invests in minority shares include: Snap, Reddit, Tesla, and so on. However, it is unlikely that technology giants will be scrutinized by CFIUS.
The global game matrix that Tencent has invested and participated in also includes the Korean developer Blue Hole of PlayerUnknown’s Battlegrounds, the Finnish developer Supercell of Clash and Clans, and the New Zealand developer of Path of Exile. Company Grinding Gear Games, French developer Ubisoft of Assassin’s Creed, Swedish developer Fatshark, Norwegian developer Funcom, etc.
Although these game developers are not American companies, and Tencent does not need to file for CFIUS approval for their investment in them, the games they develop are widely popular in the United States and have a large amount of American user data. PlayerUnknown’s Battlegrounds is currently the tenth most spent game among American gamers. The U.S. government can also conduct investigations on the grounds of protecting user data.
US President Trump issued an executive order early last month, citing national security reasons to block the two major Chinese apps TikTok and WeChat in the United States. At that time, the administrative order on Tencent WeChat did not involve Tencent’s gaming business. After a month of multi-party negotiations and policy transitions, Bytedance finally agreed to jointly operate TikTok’s US business with Oracle and Wal-Mart; the US government has approved this transaction structure, but it needs to be approved by the Chinese government.
But the problem of WeChat is more complicated. Since Tencent did not reach an agreement with the US government in time (the content of the negotiations between the two parties was not announced), the US Department of Commerce issued relevant documents last Friday to specifically implement the president’s executive order, ordering Apple and Google’s US app stores to remove WeChat and prohibit WeChat from U.S. payment transactions and other blocking measures. Tencent admitted that the ban may affect WeChat’s growth in the United States, but did not give a specific assessment.
According to the previous interpretation of the US Department of Justice, US users continue to use WeChat without legal responsibility. However, after the U.S. Department of Commerce issued a banning document, the WeChat User Association of the United States spontaneously organized by the Chinese Americans urgently applied for a court hearing, and successfully won the Federal District Court for the Northern District of California to issue a temporary injunction on Sunday to temporarily prevent the Department of Commerce from implementing this. A killing order.
Searching for information related to equity structure or data security is usually a prelude to CFIUS’s formal investigation. If CFIUS initially determines that there are hidden dangers that may affect the national security of the United States, it will initiate a formal investigation of the transaction. However, CFIUS sending a letter requesting information does not mean that an investigation will be officially launched, nor does it mean that an investigation will be forced to divest.
A person in charge of a Chinese-funded company’s business in the United States introduced to Sina Technology that if CFIUS believes that it is necessary to conduct a national security investigation on foreign-funded businesses in the United States, the U.S. Department of the Treasury will notify the foreign-funded company in writing and request relevant materials to be submitted. This process takes about 1 month. time. Including the subsequent preliminary review and formal investigation, the entire process may last 3 months. This Chinese-funded company also completed the acquisition of the US Internet business in 2015. They have recently received a notice from CFIUS requesting information, and have not received a formal investigation notice from CFIUS.
Aimen Mir, a partner of Fuerde Law Firm and former Deputy Assistant Secretary of the U.S. Department of the Treasury who is directly responsible for reviewing investment security, believes that as long as a large amount of user data is involved, CFIUS may be concerned about foreign business in the United States, but the key to the problem is CFIUS Will it be considered that the relevant business risks are large enough (affecting the national security of the United States) that the divestiture of assets is required? On August 14th, Trump’s executive order that ByteDance sold TikTok’s US business was a suggestion from the CFIUS investigation.
CFIUS is an interagency agency within the US federal government, including nine cabinet departments including the Treasury, State Department, Justice, Commerce, Homeland Security, and Defense, as well as seven other related agencies. This committee is like a special working group, with members nominated by the President of the United States, and the Secretary of the Treasury as the chairman and responsible for its work. Its main function is to assess whether foreign investment and business in the United States will pose a threat to the national security of the United States, and to assist the President of the United States in making decisions and actions.
In the past, CFIUS’s review industries were mainly sensitive industries such as energy, telecommunications, defense, and chips. However, in the past few years, CFIUS’s review scope has been greatly expanded. The “Foreign Investment Risk Assessment Modernization Act” (FIRRMA), which was promulgated for trial in 2018 and formally implemented in 2020, included key technologies, critical infrastructure and critical personal data (TID) related fields in the scope of mandatory filing and review, and strictly restricted foreign investment (mainly It is for China) to invest in American companies or access products and technologies in these fields.
In the past two years alone, CFIUS has forced the two Chinese companies Kunlun Wanwei and Zhongshiji to sell the same-sex dating site Grindr and the hotel information management system StayNTouch, which they acquired in the United States a few years ago. Given that FIRRMA is a bill passed unanimously by both parties in the United States, the Democratic Party also advocates strict review of foreign investment in the United States. Therefore, even if there is a party change in this year’s general election, and Biden will come to power next year, the United States’ foreign investment policy is unlikely to change significantly.
An investment manager of a Chinese-funded investment fund in Silicon Valley talked to Sina Technology about his views. According to FIRRMA, Chinese companies must undergo CFIUS approval even if they obtain board seats in the above-mentioned sensitive industries. Tencent’s holdings in Riot Games and Epic far exceed the standards that should be reviewed. It is normal for CFIUS to investigate this. The investment manager said that since the adoption of FIRRMA in 2018, their investment in Silicon Valley has fallen sharply and even stalled. Many Silicon Valley startups dare not and are not willing to accept investment from China.
“I don’t know if Tencent passed the CFIUS review when it invested in Riot and Epic. After all, many years have passed, but CFIUS review has the right to retrospect. Even if they want to conduct a national security review now, it is normal. Tencent has not been overly involved in Riot’s business with Epic, and has not been exposed to user data. Normally, there should not be any problems. Maybe CFIUS just checked the situation and found no problems with Tencent’s investment, and it passed.”
“But the current position of the U.S. government is that as long as you are a Chinese company, you may be able to help China steal user data. This is directly stigmatizing. CFIUS has not detected any misuse of TikTok U.S. user data. The same force you to sell, of course, the final outcome has changed. Who knows if the US government will decide that Tencent holds a majority stake in a US game company is not safe. Anyway, CFIUS does not need to publish their investigation evidence, only needs to publish the investigation. Conclusion. The decisions of this administration cannot be predicted by convention.”
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