Stumbling block: the battle over WeChat

Hello and welcome to The Intelligence on Economist Radio. I'm your host, Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world. A tiny island in the middle of the Mediterranean reveals a lot about how European migration is evolving. On Lampedusa, landings are Are rising, and new anxieties about the pandemic are mixing with old ones about foreigners. And how do you take your coffee? For many Japanese people, the answer is often in a can. But the pop-top prepackaged pick-me-up is growing fast in other markets. We take a look at how Japanese producers are doing what they can. First up, though, a new battle is shaping up in the legal wrangles around Chinese social media apps operating in America. The Trump administration's attempt to block WeChat and TikTok from American app stores was overturned by a federal judge on Sunday. Yesterday, America's Commerce Department said it would appeal. The wildly popular video-sharing app TikTok has been the subject of jockeying from American firms for ownership after President Donald Trump said he would ban it unless a sale was agreed.

It can't be controlled for security reasons by China. Too big, too invasive, and it can't be. And here's the deal. I don't mind if, whether it's Microsoft or somebody else, a big company, a secure company, very American company, buy it.

That seemed to be solved on Saturday when he approved a deal involving Oracle and Walmart. But that still left WeChat, a platform with a huge following in China and among the Chinese diaspora.

If U.S. banned the individual use of WeChat, that would be a disaster. For example, I can use WhatsApp in the U.S.

Li Tang is Chinese but lives in New York.

But WhatsApp was blocked in China since 2017. So if U.S. government banned individuals from using the my WeChat, that means my connection with China is totally being cut off.

The administration's wish to block it entirely now lies with the courts, but that battle will be very different from the one over TikTok.

This was going to cripple the use of WeChat in America for about 3.5 million Chinese Americans who are the majority of its users. And the Californian judge has sort of paused this in order to examine questions around freedom of speech in doing this.

Hal Hodson is The Economist's Asia technology correspondent.

The ruling kind of acknowledges that while there may be national security questions, it doesn't appear immediately that a ban is the only way to deal with those questions, and that a ban does appear to impinge upon the freedom of speech of those Chinese Americans. And so it's kind of a, we're going to take a moment here and check how legal this is. And that makes sense because nothing like this has ever happened before.

So in what way? What are the rights that are under threat here?

Well, it's pretty broad brush. WeChat is a kind of everything app. And both in mainland China and in America, people that use it use it for loads of different things. They use it to send money to their families. They use it obviously to communicate. The most obvious analog there is something like WhatsApp. But it also has personal finances. It has news. It's kind of like a little internet in a box. And for a lot of people, that's the whole internet. And so that's why cutting it off is such a risky thing. Yet the fact that it's sort of all of the internet in a single app is particularly important in China where not only are other services, particularly Western services, blocked, you can't download them from app stores in China, things like Twitter and Facebook and WhatsApp, but the communication on WeChat itself is censored according to the Chinese government's sort of prescriptions. In a way, this freedom of speech argument is actually a question of whose freedom of speech. Do we want Chinese Americans to be free from Chinese censorship, or do we want them to be free to use a service that they want to use? It's a difficult question.

And so on what grounds is the Trump administration trying to ban it?

Well, the stated reasoning is that WeChat presents a national security risk to America and to American people. As with TikTok, the idea is that data about Americans, sort of intimate data, communication with their families, businesses, can be harvested are harvested through WeChat and sent back to the Chinese government for various purposes. The other concern is that WeChat censors conversations on its app. And both of these have grounds. In fact, there's research from a group called the Citizen's Lab in Toronto which does show that WeChat is censoring various kinds of communication, not just in mainland China, but all around the world for its sort of extra-China WeChat users. But there's a more skeptical angle to this on the government's motivation, which is that being tough on China looks good for Trump. Trump in the run-up to an election. And it puts Joe Biden in a corner to sort of force him to take a position on closeness with China.

So how does the discussion around WeChat fit into the, the rather longer-running one about TikTok?

The difference between the two of them is that TikTok has American investors. TikTok has its roots in the acquisition of an American company. And so that gives America sort of jurisdiction over TikTok because America has always had control over investment in the United States. And that's the kind of starting point for the examination of TikTok and the administration's attack on TikTok. WeChat doesn't have that. WeChat doesn't have any American acquisitions that formed it. It's a much older piece of technology and it's much more sort of purely Chinese. And so the only way that the administration has to attack TikTok is through this very unusual executive order that resulted in a list to ban transactions from the Department of Commerce that again, important to remember, doesn't have a precedent. And so, you know, when we're looking at what this, the results of this temporary stay from the judge in California will be, it's very hard to say because nothing like this has happened before.

So in that regard, the long-run outcome of this won't be the kind of division and selling and jockeying that we've seen about TikTok?

No, there's no latitude for that. I mean, the fact is as well that WeChat's 3.5 million users in America doesn't represent like the gigantic sort of social media growth opportunity that TikTok's 100 million users in a brand new app that, you know, all the kids are on. That's a much more exciting proposition for companies like Oracle and Walmart that are, you know, supposed to be taking stakes in TikTok. But the other way in which these two things are joined up is in the American government's increasing efforts to control the kinds of things that happen on the internet. And this isn't just about America versus China, but America versus China is kind of catalyzing raising a much, much bigger discussion about what happens online and who gets to be in charge of that.

But all of this seems to be getting away from the free, un-splintered, almost entirely unregulated internet that America pioneered.

Yeah, it undeniably is. It is just a factual observation to say that this sort of activity, very top-down, very directly political— Trump's basically in charge of these things and a group of political allies starts to look a lot like the way that China does business online. And I guess that's not necessarily a problem a priori, but it is definitely a change in the way that America does its business. And it is important to remember that it's not like America started this. China has not allowed loads of different American services in for a very long time. And, you know, one potential outcome of this is that you'll see the people who really need these services using them sort of illicitly. So you start to get a kind of gray market for digital services where your ability to route around the controls that your government puts on you dictates your ability to access the services you need. And that's probably a bad thing.

Hal, thanks very much for your time.

Thank you, Jason.

Today's episode of Money Talks, our sister podcast on the markets and business, looks at the changing geopolitics of energy. Grand shifts in energy sources and priorities are likely to reshuffle the global order. Charlotte Howard, our energy and commodities editor, explains how China is poised to become a new kind of power.

If the 20th century had petrostates, I'd argue that China best shows what it means to be an electrostate in the 21st century.

Listen to Money Talks, available later today wherever fine podcasts are sold and traded. Italy's fragile coalition government just faced its first electoral test since the outbreak of COVID-19. As regional elections wrapped up yesterday, leader of the opposition Matteo Salvini spoke confidently of his coalition's chances of making breakthroughs. But today's results showed the hard-right opposition didn't make all the gains it had hoped for. A boost to the government and a setback for Mr. Salvini and his anti-migrant agenda. Northern League party. In recent months, he had sought to use the pandemic to advance his core platform on immigration. He and his far-right allies are even blaming the country's climbing caseload on refugees, many of whom are again attempting a treacherous journey to a tiny island south of Sicily.

Lampedusa is a gateway into Europe.

John Hooper is our Italy and Vatican correspondent.

It's a small Italian island down in the southern Mediterranean. It's actually closer to Tunisia than it is to Italian territory. It's a part of the whole immigration issue in Europe. Since the early 2000s, it's been a major arrival point for people not just from North Africa, but from far away, trying to get into the EU by the most convenient and the safest route. And I say safest, though, with inverted commas around it, because the crossing, whether from Libya or from Tunisia, is extremely dangerous in the kind of rickety little boats and rubber launches that the traffickers use to bring people across the sea.

But those kinds of boats loaded with migrants have started landing again in Lampedusa.

They have indeed. There was a pause because of bad weather. And on September 8th, the landings began again. There were 3 on Lampedusa. [Speaker:MAN] [SPEAKING ITALIAN] These landings are the latest manifestation of an upsurge that there normally is an upsurge in the summer, but this time the overall levels of the number of people coming into Italy has been higher certainly than last year. And it may turn out by the end of the year to have been higher than 2018, though nowhere near as high as during the peak years in the mid-2010s, when, well, for example, in one year you had 180,000 people coming through the central Mediterranean route.

And that's to say that the, the infrastructure for receiving migrants is, is able to handle the uptick now?

Well, certainly not on Lampedusa. Uh, the reception center there is built to house just 192 people, which I think also has a lot to say about the appetite, if you like, of the authorities for, for dealing with this problem, because this is a main transit point. This summer there have been moments at the end of August where there were around about 1,500 people needing to use that reception center. So huge overcrowding and inevitably a degree of, of anger and distress among the local people on the island.

Well, what about from, from the authorities? How are the Italian authorities responding to this?

Well, the way they've coped with it is to offload a lot of the migrants onto quarantine ships, which they have had standing off both Lampedusa and indeed the southern mainland. And the idea is to kill two birds with one stone. In other words, to find a place to put them temporarily, but also a place where they can be checked for COVID-19. A decision, I might say, that has been criticized by some of the experts because they say, well, you put people onto a ship and the chances are that if somebody or other has got this virus, then they're going to pass it on to, to others on the vessel.

And how does all of this play into the immigration policies of the current Italian government?

I would not say that the Italian government at the moment has anti-immigration policies. They are, broadly speaking, center-left. So the attitude has been a lot more tolerant than when the Five Star Movement was in power with the Northern League, which has a very hard line on immigration. So that's where part of the pressure has come in all of this. The other pressure is purely economic. This is an extra worry for the government at a time when it's trying to have to cope with all the multiple ramifications of the pandemic.

But I suppose with all of those pressures, then it would be fairly easy to essentially make new immigrants the scapegoats for a far wider set of problems.

Yes, indeed. The opposition in Italy has tried to link the increase in the number of refugees and other migrants landing in the country with the recent uptick in COVID-19 contagion. Now, All the authoritative studies fail to bear this out. In fact, they show the category that includes both the illegal migrants and foreign tourists as being the one group where there has not been an increase during the summer in the level of contagion. But having said that, um, This is a simplistic argument that appeals to many people. There have been protests on Lampedusa itself. [SPEAKING ITALIAN] And I think there are many who do believe that there is a link between the two things, and that creates a big problem for governments, not only, I think, in Italy, But right across the Mediterranean.

John, thank you very much for joining us.

My pleasure.

Tada! That is an advertisement for Boss Coffee. One of Japan's most popular drinks, fronted by an American actor, Tommy Lee Jones. "Unbelievable!" Coffee in a can is extremely popular in Japan. Vending machines are everywhere for an on-the-go jolt. The trend, though, is frothing up in other markets abroad. And that can-do attitude elsewhere poses a challenge for Japan's java giants.

A man, Tadao Oshima, or Oshima Tadao, was drinking a milky coffee on a station, and his train arrived. And at that point, it was in a bottle that you'd have to give back to the shop where you'd bought it before you got on the train. And he hadn't quite finished and found it deeply frustrating. So he decided to invent something that people could take with them.

Sarah Burke writes for The Economist and is currently in Tokyo.

And then it sort of spiraled from there. You know, this was the 1970s. And the 1980s, Japan went into economic boom, and everyone was working really hard. And so people just used this stuff, drank it to keep themselves awake to work.

And canned coffee remains popular even today in Japan.

It's fantastically popular. I mean, it's still the biggest consumer here of ready-to-drink brews. It's 3.1 billion litres per year, which is half the global total of these ready-to-drink coffees. You pass a vending machine every corner you walk past, all selling 20 different types of coffee, hot, cold, white, black, sugary, non-sugary, and they're ¥100, ¥120, which is, you know, roughly a pound or a dollar. It's not very much, and they're pretty good quality.

But Japan is the major place this is consumed. This has not taken the world by storm yet.

No, it's not, but you know, it's getting there. So America is where it's the fastest growing and most profitable place. So everyone's sort of eyeing there and wondering how they can flog this stuff. Still, at the moment, it consumes a small amount compared to Japan. It's about a fifth of what Japan drinks in terms of canned and bottled coffee. But the market's already worth a third of the value of Japan's, and that's grown by 78%, which is, you know, huge in the 5 years to 2019. And it's a slightly different type of market. They're not directly comparable. So the consumer in America is young compared to here, often female instead of male. Usually wants a big, sort of a big coffee, you know, 500mls instead of here, the cans are small, 180mls, something like that. They usually want cold. It started as an ice trend rather than a hot one and in a resealable bottle so they can open and close it.

So is it the big Japanese brands that have been around forever that are expanding into these new markets?

No, it's kind of striking that those Japanese brands are almost entirely absent in America. Starbucks dominates, which may come as no surprise, and then it's other companies such as Coca-Cola launched Dunkin' Donuts coffee. You know, I talked to some executives from Coca-Cola and they say, well, you have to go with a known brand. You know, you can't just launch a new coffee. People are already drinking Dunkin' Donuts coffee. The best one is to sort of partner with someone, which actually is what Suntory, which is the big Japanese player here, did with Starbucks to come into the Japanese market.

So where do you see this heading in the long term? Who do you think are going to be the big winners in what is eventually a big global market for canned coffee?

Well, I think it's going to stay pretty segregated. Japan's a huge market, but it's not very profitable, so that's not great for the Japanese companies. You know, I talked to some of them here, and they say that they are actually seeing competition here from foreign companies more so than the, you know, Japanese companies are providing competition abroad to other companies there. So first of all, if you look at tastes here in Japan, they're growing more similar to Western ones in terms of what sort of coffee they want. They want bigger, you know, milky. So the companies here are launching that type of thing, but it also has given space for other companies to come in. I mean, it's kind of interesting that this month was the month that Californian coffee company Blue Bottle launched a vending machine here that sells canned coffee. It's its first ever in Tokyo. It has none anywhere else in the world. So, you know, that's a sign perhaps of things to come here.

Sarah, thanks very much for your time.

Thank you.

That's all for this episode of The Intelligence. If you like us, give us a rating on Apple Podcasts and see you back here tomorrow.