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What Does a US Ban on WeChat Mean for Fashion?

Every US-based fashion company that does business with China or with Chinese consumers will be impacted by a ban on WeChat, but some brands will be hit harder than others.
WeChat app | Source: Shutterstock
  • Casey Hall

SHANGHAI, China —When staff in Meimei Ding's Shanghai office heard about the new executive order banning WeChat in the US, "they freaked out, saying, 'what are we going to do?'"

A broadly-worded executive order issued last Thursday by US President Donald Trump has placed China's most-used app, WeChat, at the centre of a geopolitical storm, and the US-based companies that use it to communicate and sell to more than one billion Chinese consumers, in a strategic bind.

Although little detail has emerged clarifying what exactly a US ban on WeChat would involve, the ramifications could be major.

Ding’s staff facilitate business between buyers and fashion brands all over the world, including the US. “Personally, I studied this news thoroughly and the way the executive order is worded is so unclear, I don't know [what to tell them],” said Ding, chief executive of the fashion showroom and buying agency.

WeChat provides US-based companies with an essential line of communication, and commerce, to Chinese consumers.

Ding’s confusion is representative of countless other entrepreneurs, business leaders and middle managers involved in the cross-border trade of goods and services between the world’s two largest economies.

Though a ban on Bytedance-owned short video platform, TikTok, was flagged well ahead of this executive order, the inclusion of WeChat has taken many by surprise, and potentially draws many more fashion players into the fray.

TikTok has built a significant user base in the US, with more than 100 million users, many of them under the age of 25, and has seen fashion and beauty brands like Fashion Nova and E.l.f leverage the platform's popularity as a marketing tool. WeChat, however, is a different beast altogether.

WeChat provides a much wider range of US-based companies with an essential line of communication, and commerce, to Chinese consumers and colleagues. Spanning both B2B and B2C business functions, it has also been used much longer and therefore is much more deeply embedded in brands' strategies than TikTok.

Beijing-based law firm, Anli Partners, said American businesses using WeChat might be able to survive the ban “as long as their entities linked to WeChat are registered outside the US,” meaning global players with separately incorporated operations in China would see Chinese use of WeChat unaffected by a ban. However, for many smaller fashion and beauty brands, this loophole would not apply.

According to the executive order, beginning 45 days after its release on August 6: “any transaction that is related to WeChat by any person, or with respect to any property, subject to the jurisdiction of the United States” will be prohibited. The only apparent way that the ban would be rescinded is if WeChat’s Shenzhen-based owner Tencent spins off and sells the platform’s US operations.

Though Trump’s order does not define what is deemed to be a “transaction”, it does spell out in a following clause that “person” includes “any United States citizen, permanent resident alien, entity organised under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States” and “entity” is defined as including joint ventures, corporations, other organisations, including international organisations.

A broad interpretation of the order could mean that a large number of American fashion, retail and beauty players will see their business materially impacted because many, including companies such as Nike, Walmart, Michael Kors and Coach, use WeChat for all sorts of "transactions."

A large number of American fashion, retail and beauty players will see their business materially impacted.

Not only do they operate a variety of official accounts, mini-programmes, e-commerce operations and membership programs through the app’s ecosystem, they also accept WeChat payments for purchases: both within China and increasingly in other parts of the world, including at stores within the US.

Experts in China say that the biggest losers in this scenario would be the American brands that have come to rely on WeChat to reach Chinese consumers. They gain far more from the app than WeChat gains from its cut of their WeChat sales or from the relatively small user base it has in the US.

“The revenue Tencent got from these mini-apps [that American companies such as] Walmart and Starbucks [operate] is minuscule in comparison to Tencent’s video games revenue,” Beijing-based tech analyst Chengdong Li told Reuters.

“The ban would hurt Walmart and Starbucks more significantly as they rely on Tencent to get traffic.”

For example, in the case of Walmart, which last year saw 9 percent of its revenue come from China, its “scan and go” function is embedded into WeChat in China. According to Walmart, last year the service, which enables customers to skip queuing at registers and pay with their smartphones by scanning the bar code on items, was responsible for more than 30 percent of its transactions in China.

However, proponents of the executive order in the US say that a ban would impact WeChat and China more than experts in China admit. They point to the value of the data harvested by WeChat, which is ostensibly at the heart of the executive order. This is being used as a way to explain the perceived threat that Chinese platforms, known for surveillance and censorship, are seen to present to the privacy of US citizens and to broader national security issues.

The day after the announcement of the ban, Bloomberg reported the initial impact on financial markets as Tencent saw $34.6 billion wiped off its market value on Friday and the yuan slumped to its lowest level in two weeks.

Beyond immediate commercial concerns, there are also concerns about interruptions in cross-border communications that could result from a ban.

US-based companies that have operations in China (as well as China-based companies who operate in the US) use WeChat as an indispensable internal communications tool connecting teams across countries because commonly used apps in a Western context are blocked in China. It is this, the so-called Great Firewall of China, which has helped make WeChat the most convenient tool for Chinese employees to use for communicating with teams and colleagues both domestically and internationally.

However, many remain hopeful that the purview of the ban will not be so broad. A narrower interpretation could see WeChat simply removed from the US version of the Apple and Google app stores, which would mean its impact would be felt disproportionately by Chinese people living in the US.

For Chinese nationals working and studying in the US, who use the app to keep in touch with friends and family back in China, the executive order has made geopolitical tensions very personal and brought the deterioration of relations between the two superpowers into sharp focus.

Jane Ji, who uses WeChat on a daily basis for personal communication, recently relocated to Washington DC with her American husband. Now she is making contingency plans.

“I have talked with my parents about some back up plans, how we can communicate if WeChat isn't working in 45 days. If it really is banned, there’s not really much we can do,” she said.

The US-based designers that DFO’s Meimei Ding works with are taking a similarly sanguine attitude to dealing with a potential ban, which comes in a year that has thrown up so many other challenges.

“On the work front, people will find a way. This year has been so difficult in so many ways [so] this is just one more obstacle to overcome at this point,” said Ding. “None of my [US-based] designers seem terribly concerned, they are just determined to survive and carry on with their work.”

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