Feb 11, 2023 - Economy

TikTok drama underscores growing U.S.-China divide

Illustration: Aïda Amer/Axios

TikTok, the popular social media app that’s taken the world by storm, is increasingly living a double life in the U.S.

  • The platform faces growing bans and open disdain from lawmakers, while also representing potentially huge financial returns for its American investors.

Why it matters: After decades of a united pro-China stance, the U.S. political and business consensus is fracturing in ways that are creating blowback for investors and companies.

State of play: TikTok is currently banned by about half of U.S. states and Congress from government devices, and is facing calls in Washington for a total ban over privacy concerns.

  • The company is currently working to finalize its deal that's had Oracle host its U.S.-based users' data, in an attempt to wall it off from Chinese government access.
  • The deal was first proposed in 2020 during the Trump administration, in response to national security concerns.

Yes, but: TikTok is but one symptom of this broader trend that's shaking up the status quo in Chinese investment.

Meanwhile: American venture capital investors have been pouring more and more dollars into China's stable of startups — such as ByteDance, TikTok's owner.

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 limited partners, have also been backing China-focused and China-based venture funds.

Between the lines: American lawmakers may be critical of Beijing's policies, but China still represents a huge market opportunity that's nearly impossible for U.S. companies to ignore.

  • Just look at Apple's continued careful treading around concerns over human rights violations, and its relationship with Hong Kong and Taiwan. Apple's iPhones had a market share of between 20% and 25% in the last six months.

The intrigue: Wall Street investors have been pulling out of the Chinese market in the last 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, per Goldman Sachs.

The bottom line: This awkward tension is unlikely to disappear anytime soon.

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