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How Trump's war on WeChat could upend the global tech industry

August 13, 2020. Summarized by summa-bot.

A man walks past the Tencent headquarters in Beijing, China on Friday, Aug. 7, 2020. President Donald Trump on Thursday ordered a sweeping but unspecified ban on dealings with the Chinese owners of consumer apps TikTok and WeChat, although it remains unclear if he has the legal authority to actually ban the apps from the U.S. WeChat is owned by Chinese company Tencent. (AP Photo/Ng Han Guan)

President Trump's executive order last week banning TikTok if it doesn't find a buyer by next month potentially threatened to upend a vibrant social network and the broader social media marketplace.

The administration's attack on WeChat has created a cloud of uncertainty over its parent company, Tencent, denting its stock.

By one count, Tencent outpaced SoftBank as the firm with the second highest number of investments in private companies with valuations over $1 billion, behind Sequoia Capital.

According to data from PitchBook, a research firm that tracks private and public capital markets, Tencent has made 53 investments globally in 2020 alone compared to SoftBank's 37 investments.

But SoftBank has been more active in the US market: Just three of Tencent's deals this year have been in the US compared to SoftBank's 16, according to PitchBook.

"Tencent is perhaps the most powerful investor in China today," Arun Sundararajan, a professor at New York University's Stern School of Business, told CNN Business.

By targeting a Tencent property, the Trump administration may put a "serious damper on Tencent's global expansion ambitions," Sundararajan said.

Beyond that, the Trump administration's moves could further disincentivize Tencent and its peers from investing in and partnering with US tech companies.

The crackdown on WeChat could also raise questions about whether the administration will direct its interest to companies with ties to Tencent, whether through partnerships or investments.

On an earnings call Wednesday, Tencent chief financial officer Shek Hon Lo said, "based on our initial reading and subsequent press reports, the executive order is focused on WeChat in the United States and not our other businesses in the United States. "

(A Tencent spokesperson told CNN Business in a statement that it is "reviewing the executive order to get a full understanding. ")

John Demers, the assistant attorney general in charge of the Justice Department's National Security Division, said during an event Wednesday that the executive order specifically went after Tencent's WeChat in part given the amount of data a communications app can collect.

Whether the Trump administration stays focused on WeChat or probes Tencent more broadly, its moves could fundamentally change the digital marketplace.

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