November 01, 2022

Welcome back to Axios China. Today, we're looking at a call to ban TikTok, Foxconn employees fleeing a Chinese factory in lockdown, the German chancellor's upcoming trip to China, and lots more.

Today's newsletter is 1,804 words, a 7-minute read.

1 big thing: FCC commissioner says government should ban TikTok

FCC commissioner Brendan Carr testifies during a House hearing on March 31. Photo: Tom Williams/CQ-Roll Call, Inc via Getty Images

The Council on Foreign Investment in the U.S. (CFIUS) should take action to ban TikTok, Brendan Carr, one of five commissioners at the Federal Communications Commission, told Axios in an interview.

Why it matters: It's the strongest language Carr has used to date to urge action on TikTok. With more than 200 million downloads in the U.S. alone, the popular app is becoming a form of critical information infrastructure — making the app's ownership by a Chinese parent company a target of growing national security concern.

  • The FCC has no authority to regulate TikTok directly, but Congress previously acted after Carr voiced concerns about Chinese telecom companies, including Huawei.

State of play: TikTok is currently in negotiations with CFIUS, an interagency committee that conducts national security reviews of foreign companies' deals, to determine whether it can be divested by Chinese parent company ByteDance to an American company and remain operational in the United States.

  • The New York Times reported in September that a deal was taking shape but not yet in its final form and that Department of Justice official Lisa Monaco was concerned the deal did not provide sufficient insulation from Beijing.
  • A Republican-controlled Congress could try to scrap any deal viewed as too easy on China.

What he's saying: "I don’t believe there is a path forward for anything other than a ban," Carr said, citing recent revelations about how TikTok and ByteDance handle U.S. user data.

  • Carr highlighted concerns about U.S. data flowing back to China and the risk of a state actor using TikTok to covertly influence political processes in the United States.
  • There simply isn't "a world in which you could come up with sufficient protection on the data that you could have sufficient confidence that it’s not finding its way back into the hands of the [Chinese Communist Party]," Carr said.
  • Carr sent letters to Apple and Google in June asking the companies to remove the apps from their stores due to concerns about data flowing back to China.

What TikTok is saying: "Commissioner Carr has no role in the confidential discussions with the U.S. government related to TikTok and appears to be expressing views independent of his role as an FCC commissioner," a TikTok spokesperson told Axios in a statement.

  • "We are confident that we are on a path to reaching an agreement with the U.S. Government that will satisfy all reasonable national security concerns."
  • TikTok supports the passage of national data privacy legislation that applies to all companies, the spokesperson added.

What's happening: A series of recent reports have challenged TikTok's claims that U.S. user data is secure because it is stored outside of China and that the company does not comply with Chinese government content moderation requirements.

  • China-based engineers working at TikTok accessed nonpublic U.S. user information, including phone numbers and birthdays, BuzzFeed reported in June.
  • ByteDance, which is based in China, instructed employees to push pro-Beijing messaging to U.S. users of a news app, BuzzFeed reported in July. Bytedance said it did not do this.
  • ByteDance planned to use TikTok to collect information about certain U.S. users, according to a Forbes report published last month.

Flashback: The Trump administration unsuccessfully attempted to ban the app in 2020, then it ordered ByteDance to divest TikTok to a U.S. company. No sale went through.

  • Trump's crusade against TikTok was heavily criticized in progressive circles at the time, but recent reports seem to be shifting opinions.
  • "This is not something you would normally hear me say, but Donald Trump was right on TikTok years ago," Democratic Sen. Mark Warner said last week. "If your country uses Huawei, if your kids are on TikTok … the ability for China to have undue influence is a much greater challenge and a much more immediate threat than any kind of actual, armed conflict."

What to watch: A growing number of U.S. political candidates are using TikTok to reach voters as the midterms draw near, raising the stakes on the app's fate.

2. Foxconn workers flee factory lockdown

Foxconn employees take shuttle buses to head home on Oct. 30 in Zhengzhou, China. Photo: VCG/VCG via Getty Images

Workers in China fled the world's largest iPhone factory over the weekend after days of partial COVID restrictions had forced workers into a "closed loop" inside the facility.

Why it matters: The incident highlights the ongoing economic disruptions and human cost caused by China's extreme measures to fight COVID. The loss of workers could put iPhone production back several months.

Details: The Foxconn factory in Zhengzhou, Henan province, employs around 200,000 workers. Some COVID restrictions were first put in place in mid-October when several COVID cases were identified.

  • Trash piled up and employees began to worry about access to food, as well as the risk of infection, Bloomberg reports.
  • On Saturday, workers began abandoning their jobs and leaving the factory in large numbers. Videos flooded social media of workers walking along streets and through fields, per Bloomberg.

Many employees are migrant workers who sought work at the factory from other parts of China.

  • As they disperse back to their hometowns, municipalities are trying to prevent them from potentially spreading new COVID cases around the country.

What to watch: One source told Reuters that iPhone production at the factory could fall by up to 30% next month, though Foxconn is trying to make up that lost production at other facilities.

3. Catch up quick

1. Twitter removed almost 2,000 accounts, some linked to China, that it said were attempting to influence U.S. midterm elections, the Washington Post reports.

2. Secretary of State Tony Blinken and China's Foreign Minister Wang Yi discussed "the need to maintain open lines of communication and responsibly manage" the relationship between the two countries, in a phone call ahead of the G20 later this month. Go deeper.

  • The latest of several high-level conversations between U.S. and Chinese officials appears to mark a slight thaw between the two countries. Tensions have been running high since Nancy Pelosi's visit to Taiwan this summer.
  • What to watch: A possible Biden-Xi meeting at the G20.

3. China successfully launched and docked the final module of its space station, completing the facility as U.S.-China space rivalry heats up, the New York Times reports.

4. The U.S. is planning to deploy six B-52 bombers to northern Australia, as both countries have their eyes on China's growing military assertiveness in the region, Four Corners reports.

  • In other security news from the region, Australia and Japan signed a bilateral security agreement last month, the first time Japan has signed such a pact with any country except the U.S., CNBC reports.

5. China's factory activity fell more than expected in October, highlighting the ongoing toll of zero-COVID lockdowns, the Wall Street Journal reports.

4. Concerns grow over German Chancellor Scholz's upcoming China trip

German Chancellor Olaf Scholz. Photo: Sean Gallup/Getty Images

German Chancellor Olaf Scholz's visit to China later this week could trigger fierce backlash at home, analysts told Axios' Han Chen.

Why it matters: Scholz's trip on Friday with a delegation of business leaders will make him the first EU leader to visit China since the start of the COVID-19 pandemic.

  • The visit will also come less than two weeks after Chinese President Xi Jinping secured a historic third term as leader of the Chinese Communist Party.
  • The trip could send a confusing signal about how Europe's largest economy plans to deal with Beijing, especially as other EU countries increasingly toughen their stances on China, analysts say.

State of play: Scholz's predecessor, Angela Merkel, championed close economic ties with Beijing. China was Germany's top trading partner over the last six years, with bilateral trade reaching $245 billion last year.

  • But 84% of Germans would like the country to reduce economic ties with China, according to a recent poll by German public service broadcaster ZDF.
  • "Germany made a big bet on China," said Noah Barkin, a managing editor of Rhodium Group's China practice. "For many years, this was seen as a source of strength. Now it has become a vulnerability."

Details: Scholz will raise human rights concerns and urge Beijing to open up its market, a German government spokesperson said last Friday.

  • The spokesperson added that Berlin was against "decoupling" from China's economy.
  • Scholz will travel with a group of business leaders, including the chief executives of Volkswagen and BASF.

What they're saying: "It feels at the moment that the chancellery is specifically trying to maintain a certain traditional framework and economic ties with China," despite strong opposition from the public and much of Scholz's coalition, said Andrew Small, a senior fellow at the German Marshall Fund.

The big picture: Germany has been hard hit by the war in Ukraine after Russia cut its gas supply to Europe. With a recession looming, analysts said Scholz can't afford to jeopardize Germany's economic relationship with China.

  • Other EU countries, including Estonia and Latvia, have criticized the planned trip, saying such unilateral diplomacy could detract from the bloc's desire to speak to China with a "single voice."

5. What I'm reading

Redacted: In Xi’s China, even internal reports fall prey to censorship (Associated Press)

  • "Chinese journalists and researchers file secret bulletins to top officials, ensuring they get the information needed to govern, even when it’s censored. But this internal system is struggling to give frank assessments as Chinese leader Xi Jinping consolidates his power, making it risky for anyone to directly question the party line even in confidential reports."
  • "It’s unclear what the impact has been, given the secretive nature of high-level Chinese politics. But the risk is ill-informed decision-making with less feedback from below, on everything from China’s stance on Russia’s invasion of Ukraine to its approach to the coronavirus."

Equities shunned: Bowing to investor demand, funds ramp up ex-China emerging market strategies (Reuters)

  • "Money managers are launching emerging market or Asia products with no exposure to China to meet increasing demand for such strategies from global investors wary of rising policy and geopolitical risks in the world's second biggest economy."
  • "With Chinese equities floundering over the past two years due to a government crackdown on its technology sector, a real estate liquidity crisis, and rising U.S.-China tensions, broad emerging market funds have seen their returns eroded, resulting in investors clamouring for carving out their exposure" to China.

6. 1 rainbow thing: East Asia's biggest Pride parade

Three participants wear rainbow face masks at the Taipei Pride March on Oct. 29. Photo: Bethany Allen-Ebrahimian

About 120,000 people flooded the streets around Taipei’s city hall on Saturday to join the largest Pride march in East Asia.

  • The light rain only seemed to add to the festive atmosphere as people draped Pride flags around their shoulders to keep off the rain. 
  • Some people came wearing colorful Halloween costumes, others came in drag, and most boasted rainbow flags, face masks or headbands.

The big picture: In 2019, a constitutional court legalized same-sex marriage in Taiwan, making it the only country in Asia where two people of the same gender can be wed.

What they're saying: As Taipei’s Pride parade celebrates its 20th year, “it hasn’t been an easy road to get here,” one participant named You You told Axios. “So I’m grateful to everyone who has come out to the streets today.”

A big thank you to Alison Snyder and Scott Rosenberg for edits, Sheryl Miller for copy edits, and Han Chen for contributing.