TikTok in limbo, and Xiaomi’s EV crisis

“Trump is a dealmaker, and deal making is deal making — two steps forward, one step backward.”

By Doug Young & Rene Vanguestaine

Two prominent Chinese tech giants, TikTok and Xiaomi, currently face separate but equally critical crises, each testing their resilience overseas and at home. While TikTok battles regulatory uncertainty in the U.S. amid national security concerns, Xiaomi is confronting repercussions of a tragic accident involving its electric vehicles and autonomous driving technology.

TikTok’s regulatory maze

After two years of headlines and congressional action, TikTok’s fate in America remains precarious. Originally, the U.S. government mandated that TikTok’s Chinese owner, ByteDance, sell its American operations to U.S. investors due to national security concerns. After missing an initial January deadline, Donald Trump granted an additional 75-day extension, which recently expired. Trump has now extended the deadline another 75 days as a potential deal remains uncertain, complicated by new reports that Beijing is unwilling to approve the transaction.

How exactly does Beijing have such decisive influence over a sale involving overseas assets? The answer lies in the subtle yet powerful control the Chinese government wields over its companies, extending well beyond tech giants like ByteDance and Alibaba. Even companies such as CK Hutchison, which is based in Hong Kong and operates global assets including strategic port facilities near critical locations like the Panama Canal, are subject to Beijing’s indirect influence. This overarching ability to guide or even block corporate decisions explains why China holds such sway in the TikTok negotiations.

The stakes for TikTok remain high. The app’s significant U.S. user base, numbering over 170 million, makes it highly valuable. Donald Trump’s preference for negotiation over outright shutdown has been evident throughout this process. The recent extension of TikTok’s deadline revealed that he found TikTok too valuable to simply eliminate.

The situation has grown more complex with China announcing retaliatory tariffs on U.S. imports and speculation about potential yuan devaluation. This represents uncharted territory for U.S.-China relations, and we don’t expect quick resolution.

Xiaomi’s crash course in crisis management

Meanwhile, Xiaomi, the rising Chinese tech giant known for its smartphones and charismatic founder Lei Jun, is facing a very different but equally severe challenge. Last week’s fatal crash involving a Xiaomi electric vehicle, resulting in the tragic deaths of three college students, thrust the company into a crisis it was ill-prepared for.

Initial reports suggest the vehicle’s assisted driving system may have contributed to the accident, echoing earlier safety concerns faced by Tesla.

Yet, history offers important perspective. Tesla also faced significant setbacks with its assisted driving technology, including fatal accidents. Nonetheless, these incidents didn’t prevent Tesla’s stock price from climbing higher over the long term, suggesting that Xiaomi’s current crisis may not permanently damage its growth prospects.

Moreover, autonomous driving technology is now a practical reality. We’ve personally observed Waymo vehicles operating safely on public roads as fully autonomous taxis, a clear indication that autonomous technology, despite its challenges, is steadily advancing.

Still, investing in companies like Tesla or Xiaomi requires a particular type of person comfortable with speculative risk. Geopolitical tensions, regulatory scrutiny, and evolving technological standards mean these stocks are not for everyone. Until these uncertainties diminish, investors must approach such ventures with appropriate caution.

About China Inc

China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.

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