The US Department of Defense's decision to add Tencent to its Entity List may significantly impact its flagship messaging app, WeChat, especially the international version. This escalation also adds fresh uncertainty to Tencent's relationship with Apple, which has already faced tensions over app payment policies and software updates.
Sanctions threaten WeChat's development and global reach
Industry analysts suggest that Tencent's inclusion on the Entity List will impose stringent restrictions, limiting access to critical US technologies vital for WeChat's growth. Key areas such as cloud computing, AI chips, and data processing could face significant disruptions, stalling updates, and innovation. These challenges risk further eroding trust in WeChat's international version, which is already under scrutiny in the US and other Western markets over privacy concerns.
Although the sanctions specifically target Tencent Holdings, WeChat—Tencent's most prominent platform—faces potential long-term setbacks, including stunted technological advancement, reduced global trust, and limited market expansion. Apple's App Store might also come under scrutiny, potentially leading to WeChat's removal or restricted functionality.
WeChat's removal risks Apple's market and user base
The stakes are high for Apple, as Greater China accounts for up to 20% of its global revenue. Removing WeChat from the App Store would not only undermine Apple's appeal in the region but also force long-time WeChat users in China to abandon Apple devices, severely impacting iOS adoption and user experience.
Impact of a WeChat ban on Apple's sales: a 2020 retrospective
In 2020, former President Trump issued executive orders targeting Chinese-owned apps like TikTok and WeChat, mandating their sale to US companies within 45 days. This sparked widespread debate among analysts regarding the potential impact on Apple's customer base, particularly in China.
Reports from Radii, iMore, and MacRumors highlighted that banning WeChat from the App Store could devastate iPhone sales, especially in China. Analyst Ming-Chi Kuo estimated such a ban could result in a 30% drop in global iPhone shipments. With Greater China contributing 15–20% of Apple's global revenue, the region remains vital to its success.
A survey on Chinese social media underscored the stakes: of 1.2 million respondents, 95% said they would abandon Apple if WeChat became unavailable on iOS. WeChat's integration into daily life in China—serving as a hub for messaging, payments, and social networking—makes it indispensable. Losing access to WeChat would significantly erode Apple's appeal in China, damaging iPhone sales and weakening brand loyalty.
Lessons from TikTok: navigating US scrutiny
Tencent is expected to strengthen its localization efforts and reduce its dependence on US technologies in response to growing scrutiny. TikTok's approach to managing similar challenges in the US—such as adapting to regulatory demands and emphasizing local operations—offers Tencent a potential blueprint to protect its platforms while mitigating US-China tensions.
Negotiation: a path to avoiding a lose-lose scenario
To prevent a lose-lose situation, analysts recommend compromise strategies for both companies. Apple, heavily reliant on the Chinese market for its global revenue, is unlikely to sever ties with Tencent entirely. Tencent, on the other hand, may look to TikTok's playbook to protect its global operations. Negotiation, rather than confrontation, is seen as the most viable solution to balance their interests.