TikTok's political woes underscore split between politicians, investors on China

TikTok’s political woes underscore split between politicians, investors on China

Illustration: Aida Amer/Axios

Tik Tok, the popular social media app who took the world by storm, lives more and more a double life in the USA

  • The platform faces growing bans and open contempt from lawmakers, while representing potentially huge financial returns for its U.S. investors.

Why is this important: After decades of a united pro-China stance, the American political and business consensus is fracturing in a way that is creating a backlash for investors and businesses.

State of play: Tik Tok is currently banned by about half of the US states And Congress government devices, and faces calls in Washington for a total ban over privacy concerns.

  • The company is currently working to finalize its agreement that Oracle hosts the data of its US-based users, with the aim of preventing them from accessing the Chinese government.
  • The deal was first proposed in 2020 under the Trump administration, in response to national security concerns.

Yes, but: Tik Tok is just one symptom of this broader trend that is challenging the status quo of Chinese investment.

In the meantime: American venture capitalists are pouring more and more dollars into the Chinese stable of startups, like ByteDance, owner of Tik Tok.

By the numbers: In 2022, Chinese startups raised more than $9 billion in venture capital, including from U.S. investors, according to data from PitchBook and Crunchbase.

  • 2021: $27.5 billion – $32.2 billion
  • 2020: $19.8 billion – $25.5 billion
  • 2019: $14.9 billion – $29.9 billion
  • 2018: $43.9 billion – $46.9 billion

And: It’s not just VCs — their investors, or sponsors, have also backed China-focused, China-based venture capital funds.

Between the lines: US lawmakers may criticize Beijing’s policies, but China still represents a huge market opportunity that is almost impossible for US companies to ignore.

  • Just look at Apple’s continued caution over concerns about human rights abuses and its dealings with Hong Kong and Taiwan. Apple’s iPhones had a market share of between 20% and 25% for the past six months.

The plot: Wall Street investors pull out of the Chinese market over the past year, amid growing challenges to China’s economic growth.

  • For the first time in a decade, foreign investors became net sellers of Chinese fixed income and equities last year, according to Goldman Sachs.

The bottom line: This annoying tension is unlikely to go away anytime soon.

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