One April afternoon in 2018, Zhang Yiming, the founder of the Beijing-based online media company ByteDance, got a notice from Chinese regulators to shut down an app where people shared jokes and silly videos.
He followed orders and expressed his deep remorse in a public apology. “I feel regretful because I have let down the guidance and expectations of the supervisory authorities all along,” he wrote.
Mr. Zhang pledged nine remedial measures. On top of the list: Build up the Communist Party’s presence at ByteDance and educate its employees to think from the perspectives of the party and the government.
Now ByteDance, which owns TikTok, is facing a similar order from the U.S. government: It needs to divest the short video app or it will face a ban. It’s fighting back in the U.S. courts.
It used to be that a Chinese company with business abroad could act subservient to Beijing in exchange for survival and at the same time enjoy the protection of private ownership and the rule of law in the United States.
But the ground beneath Chinese companies like ByteDance is cracking as the distrust between the world’s two superpowers deepens. The businesses are caught between their own authoritarian government and an increasingly suspicious, even hostile U.S. government.
TikTok and other Chinese companies that are prospering in the United States — Temu and Shein, for example — are multinationals controlled by Chinese owners. The Chinese-owned label has become heavy baggage. It is felt acutely by anyone in China’s business community who is seeking opportunities beyond the anemic economy at home.
TikTok’s challenges in Washington are an example of what many Chinese entrepreneurs and investors have encountered outside China as the country’s business environment has deteriorated under the leadership of Xi Jinping, who prefers state-owned enterprises.
In 2023, Chinese investors put $130 billion into nearly 8,000 companies around the world, according to China’s Commerce Ministry. That was a roughly 8 percent jump in investment and 38 percent more companies compared with 2018.
“The business community is very anxious about where and what they can invest outside China,” said Ding Xueliang, a retired professor at the Hong Kong University of Science and Technology, who studies globalization and sociopolitical processes in China. He has been giving lectures to Chinese entrepreneurs, sometimes hundreds at a time, who want to know whether their companies may face national security scrutiny in the developed world.
“The path is narrowing, and the slope is getting steeper,” he said.
The tricky part, he and others said, is that the United States has legitimate reasons to doubt that TikTok can be truly independent of the Chinese government. No Chinese company, or entity owned by one, can say no when Beijing asks. Doing so jeopardizes an executive’s personal and business assets, as well as the safety of the executive’s family. The way Mr. Zhang, the ByteDance founder, responded to the government order in 2018 is typical.
The murky reality of doing business in China makes it difficult for the outside world to distinguish companies from the Chinese government.
Some firms, especially online platforms like ByteDance, help strengthen the rule of the Communist Party by enforcing censorship and spreading propaganda. Companies have benefited from close ties with the government, which is hard to avoid in a country where the state owns much of everything.
The problem with ByteDance is that it wants to have it both ways, said a former project manager at both ByteDance and TikTok who left last year and asked that I identify him using only his surname, Su. ByteDance acts as an arm of Beijing’s propaganda machine while enjoying the benefits of the free and democratic world abroad, he said.
TikTok has more than one billion users around the world, including 170 million in the United States. It’s not available in China, where ByteDance offers Douyin, a similar short-video app. The U.S. government is worried that the Chinese government could lean on ByteDance for access to sensitive data of users or spread propaganda. TikTok has rejected these concerns and said it has taken measures to store American user data in the United States.
But most Chinese companies in the private sector, just like their American counterparts, want a level playing field so they can go where the money is. That goal is facing increasing scrutiny and uncertainty.
A Chinese businessman on self-imposed exile in another Asian country told me that the country’s government had blocked his bid to invest in a semiconductor company because of national security concerns. He ended up investing in the hospitality industry. He can’t go back to China for fear that the authorities would punish him for his outspokenness, while his money is not welcomed in his host country because he’s Chinese.
Most people I interviewed wanted to remain anonymous for fear of retribution from the Chinese authorities. Some of them asked me not to name the countries or Chinese cities they lived in.
In Silicon Valley, start-ups that focus on artificial intelligence, semiconductors and other cutting-edge technologies either avoid Chinese investors or tell their existing Chinese investors to divest. They don’t want to go through the government review that Washington requires for transactions involving foreign investment.
Some American politicians talked about distinguishing between the Chinese Communist Party and the Chinese people, but in practice they are lousy about it.
During a Senate hearing in January, Senator Tom Cotton, a Republican from Arkansas, asked TikTok’s chief executive, Shou Chew, repeatedly about his citizenship. “Of what nation are you a citizen?” he asked. Also: “Have you ever applied for Chinese citizenship?” The answers were Singapore and no. I can’t imagine what the follow-up questions would have been if Mr. Chew were a Chinese passport holder like me.
In Florida, a law prohibits many Chinese citizens from buying homes because of national security concerns, as my colleague Amy Qin reported this month. More than three dozen states are considering laws that would prohibit Chinese citizens and entities from buying or owning property.
All of these have put a chilling effect on Chinese investment in the United States. New investment has slowed to a trickle, according to the research firm Rhodium Group. China’s new U.S. investment dropped below $5 billion in 2022 from $46 billion in 2016. China fell from the top five among U.S. investors to the second tier, surpassed by countries such as Qatar, Spain and Norway, Rhodium Group wrote.
Chinese venture capitalists no longer descend on Silicon Valley to scout the hottest start-ups. They bump into one another in Abu Dhabi or Riyadh now.
That’s not to say the United States is wrong to be cautious about investment from China, several scholars and lawyers said. As the Communist Party has made national security its top priority and the world is retreating from globalization, democratic countries need to think through their principles and practices, said a scholar who has studied China’s internet industry for decades. The process will expose their many contradictions and vulnerabilities for their adversaries to exploit, she said. Countries need to decide how to balance openness and security.
An online platform like TikTok wields enormous influence, the scholar said, so it’s not surprising that its Chinese ownership became a touchy issue in the United States. In China, this issue would be resolved with a phone call from the government. In America, the due process could take years.