HONG KONG / TAIPEI – Washington’s decision to ban popular Chinese messaging app WeChat threatens Apple’s hard-won position in China’s smartphone market, as users in the country are soon forced to choose between their iPhones and their favorite app.
US President Donald Trump on Friday signed an executive order banning US transactions with WeChat on September 20, describing the Tencent Holdings app as a threat to national security. A separate order issued the same day focused on TikTok, the viral streaming app owned by ByteDance.
Apple is the only Western smartphone maker with a remarkable presence in the Chinese market and trusted the country for almost 20% of its turnover.
While the specific scope of the WeChat ban remains to be seen, some iPhone users in China have already made up their minds about which side they will choose, rather than forced.
“If Apple removes WeChat from its China App Store, I’ll switch to Huawei,” said Chen Xixiang, an iPhone user from Chongqing City who has been buying a new Apple handset every year since 2008.
“Having WeChat is a must in China,” Chen told the Nikkei Asian Review in an interview about the app. WeChat is used by 1.1 billion people – mostly in China – and its features go far beyond conversations. The app offers services, ranging from paying bills to picking up a taxi and even exchanging second-hand goods.
“WeChat is a crucial part of Chinese life,” Chen said, adding that the rapidly improving quality of domestic smartphones would make it easier for him to give up iPhone.
Chen is hardly alone. Local media outlet Phoenix Weekly has posted an online interview asking: “If one day Weixin [the Chinese name for WeChat] can no longer be installed in iPhones, would you change your phone or not use Weixin? Among 88,000 participants surveyed as of Tuesday, nearly 80,000 of them said they would choose the messaging app, while less than 6,000 said they would stay with their iPhones.
The executive order issued on Friday did not specify whether the ban would cover WeChat-related services offered by U.S. companies outside the U.S., but the rating is open to various interpretations.
“In terms of something [Trump] is trying to ban, the language of the Executive Order for Tencent is aimed at the use of WeChat by U.S. users, ‘said Wendy Wysong, a U.S. sanctions expert at Washington, DC-based law firm Steptoe and Johnson.
However, Harry Clark, another lawyer who specializes in export controls at U.S. law firm Orrick, thinks otherwise. If companies like Apple fall under the classification of “American individuals,” Clark said, the smartphone giant will be forced to drop WeChat from its App Stores worldwide, unless the order is withdrawn or adjusted in some way.
The US Commerce Department has 45 days to explain the scope of the ban and how it will be enforced, but the possibility of losing WeChat as a sales and marketing channel that could reach more than a billion Chinese customers already has a cast shadows over American companies. Under the influence, sportswear maker Nike, which operates digital stores on WeChat, will only include costco membership chain Costco, which recruits new users through the app, as well as heavyweight Procter & Gamble consumer goods, which distribute e-coupons via the WeChat platform.
None of these, however, face the same level of risk as Apple.
“Given that 17% of Apple’s revenue in 2019 came from China, this could have a material impact on Apple’s revenue,” Chelsey Tam, an analyst with global financial services firm Morningstar, warned investors in a research note on Monday. Shares of Nasdaq-listed Apple slipped about 2.5% Friday after the announcement, wiping out tens of billions of dollars in market value in a matter of hours. The share price slowly returned on Monday.
While Apple’s big rival Google and its Google Play store are not immune to Trump’s WeChat ban, analysts say Chinese smartphone users have learned to live without Google’s offerings since Beijing forced the Silicon Valley search engine provider out of the country a decade ago.
“Google Play is not available in China, but Chinese Android smartphone users could always download and update WeChat from other channels. … But that’s not the case for iPhone users,” said Chiu Shih-fang, a veteran smartphone analyst at Taiwan Institute of Economic Research.
“If Apple had to remove WeChat from their App Store, it would have a negative impact on their iPhone sales, especially in the Chinese market,” Chiu said.
China is the second-largest overseas market for Apple after Europe, which means that any downturn could significantly damage the US giant’s bottom line. The company had to cut its revenue as early as the beginning of 2019 – for the first time in 16 years – due to weaker demand in China.
The ban on WeChat could also stem from Apple’s ambitions to regain its position in the world market. In China, Apple already dropped to fifth place with an 8.5% market share in the second quarter of this year, according to global consulting firm Canalys.
Apple, which has been dragging Huawei Technologies into handset shipping since 2019, is betting big on its upcoming 5G iPhones to compete and regain lost ground.
But with the U.S. ban on WeChat set to take effect in September, “it could affect Apple’s sales in China for its new 5G iPhone due to be unveiled in the same month,” Chiu said. The California-based smartphone heavyweight is already facing sales uncertainties due to production delays amid the COVID-19 pandemic.
Losing access to WeChat could also lose Apple’s popularity worldwide, as anyone doing business with China will have to figure out another way to maintain communication with WeChat users. For Jim Liao, a product manager at a startup in Taipei, that would probably mean buying handsets from Apple’s competitors.
Liao described the WeChat ban as a “headache” for his team because they rely on the messaging app to talk to vendors in mainland China.
“That’s the most widely used tool for them,” said Liao, referring to China-based companies. While the U.S. has yet to discover its definition of the WeChat ban, Liao said his company has already considered buying smartphones from Chinese vendors such as Xiaomi and Oppo to avoid potential disruptions.
“I think these Chinese smartphone makers will help their overseas consumers figure out how to download or update weChat,” he said.
Apple did not respond to a request for comment from Nikkei.
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