Chinese Apps in Crosshairs: Will SHEIN, CapCut and Temu Face Regulations Next?

As regulators the world over continue to scrutinize TikTok, the insanely popular short-video app owned by Chinese company ByteDance, it seems they are missing the bigger picture. TikTok is only the tip of the iceberg; four out of the five most downloaded apps in April 2023 had Chinese roots, and may potentially be used to influence users.

This is not to say that something nefarious is happening on these apps — or even will happen. Chinese apps tend to be naturally successful in the West because they are created in a highly competitive environment where engineers abide by the 996 working hour system — work from 9 am to 9 pm, six days a week. The digital services that break out are really good and thus successful.

Nevertheless, seeing how things are going for TikTok, which has been accused of posing a national security threat and censoring content unfavorable to China, it’s important to know what these apps are so that we may weigh in when they inevitably come to the forefront of international discussion.

Temu — Amazon on steroids

Temu is the American off-shoot of Pinduoduo (拼多多), one of China’s largest e-commerce platforms. Both belong to PDD Holding, a Chinese conglomerate. Temu’s success comes from its ability to offer incredibly cheap products — “exclusive sales up to 90% off” — for a wide variety of categories from fashion ($1.69 for five pairs of socks!) to technology ($8.98 for Lenovo earbuds!), and everything in between.

Products can take a few weeks to arrive — if they ever do — as they are shipped directly from Chinese factories or warehouses. This reduces the price drastically, so users seem not to mind. Growth has been driven by aggressive marketing campaigns, including a Superbowl advert in early 2023.

This all sounds very reasonable, and even bears a striking resemblance to Amazon’s modus operandi. But an over-zealously Sinophobic lawmaker could find plenty to say about Temu. For starters, the app collects much more personal data from its users than TikTok does. Names, addresses, phone numbers, email addresses, credit card information, browsing history, preferences, and purchases could all potentially be used by unfriendly actors to target users with phishing scams, identity theft, fraud, blackmail, or espionage.

The real “threat”, however, is much more straightforward. For the first time in 30 years, China’s manufacturing has become capable enough to entirely do away with intermediaries and directly compete with Western companies (RIP drop-shipping). If more and more consumers flock to Temu to buy cheap goods, Amazon and other competitors might feel pressured to slash their prices too. A lower break-even point — combined with shareholders’ demands for short-term profits — would cut wages, erode domestic manufacturing, and create (further) unrest within the more blue-collar parts of the population. As we know, they’re already pretty upset; best to keep an eye out.

CapCut — TikTok’s talented younger brother

Another insanely popular Chinese app is CapCut (originally JianYing), a video-editing app launched and maintained by ByteDance, the same company behind TikTok. The app offers basic video editing features such as text, stickers, filters, colors, and music, as well as more advanced features such as keyframe animation, smooth slow-motion effects, chroma key, Picture-in-Picture (PIP), and stabilization.

CapCut prides itself in being “the official free Video Editor and Video Maker with Music for TikTok that is versatile and easy-to-use”. It’s no “Just Do It”, but the lack of a good tagline hasn’t stopped the app’s growth: it now has 200 million monthly active users, mostly driven by TikTok’s success and the need to keep innovating to stay at the top of the virality game.

Nothing there could be concerning for lawmakers, right? That is, until they learn that multiple teams at CapCut are working to launch AI-driven features. Notably, one of the tools being discussed would allow users to generate videos in seconds simply by providing a textual prompt.

This presents two issues that anti-China governments could exploit. First, as fake videos become increasingly common and begin to cause harm, it’s likely that foreign tools will be heavily scrutinized for any signs of government intervention. It would be too easy to train an AI model that makes particularly believable fakes of one political candidate over another, or to ensure that specific power dynamics are highlighted in all AI-generated content, slowly but surely encouraging unrest.

The topic of data privacy is also likely to quickly become preponderant. Many people are already displeased about AIs being trained with their image and content without ever seeing a dime. That feeling is likely to become somewhat exaggerated when the AIs are created by foreign powers to do who knows what.

SHEIN — Our planet’s worse nightmare

You’ve heard of SHEIN. And if you haven’t your teenage daughter has. As have the entire world’s teenage daughters, it seems. The app is yet another e-commerce company that specializes in women’s fashion, offering “trendy” clothing, shoes, accessories, and beauty products at affordable prices. Affordable here means dirt-cheap, this being a Chinese company.

It is owned by Roadget Business Pte. Ltd., a Singapore-based subsidiary of ZOETOP Business Co., Ltd., a Chinese company based in Nanjing that also operates other fashion platforms such as ROMWE and CUPSHE. If this level of complexity seems suspicious, trust your instincts.

According to a report compiled by Money.co.uk, SHEIN has taken over giants like Nike and Adidas as the most-Googled clothing brand, and Zara and Macy’s in online sales. Just like Temu, the company has been using aggressive advertising over the past couple of months to get a significant share of the fast fashion market. This includes influencer partnerships (#SHEINhaul), pop-up shops, and even a social media reality show co-hosted by Khloé Kardashian. In fact, their posters are plastered all over the Paris metro — that’s often the surest way of knowing a company is on a European blitz.

SHEIN could be accused of the same “crimes” as Temu. It collects plenty of information about users and is lowering the standards and average prices of fast fashion so drastically that Zara and H&M are starting to look like Balenciaga in comparison.

However, SHEIN has been targeted by more serious allegations already in the West. Firstly, the company is accused of providing counterfeit goods. This has been an ongoing source of friction with China and is likely to get more intense as Sinophobia gets more intense (especially within luxury-heavy countries like Italy and France).

Secondly, the company’s treatment of workers is famously appalling: from unsafe conditions to unsustainable hours, every rule in the book is broken by SHEIN. Finally, and perhaps more importantly, the environmental impact of SHEIN has come to the forefront. The company (and/or its affiliates) churns out the same amount of CO2 as approximately 180 coal-fired power plants.

Should there be an attack on the company, these will likely be the angle chosen by regulators. Given that the world is both increasingly warm and covered in trash, who could blame them?

Temu, CapCut, and SHEIN have all distanced themselves from China in recent months. And why wouldn’t they? Based on how TikTok has been treated by US regulators who have tried to ban it or force it to sell its US operations to an American company, they have every reason to downplay their Chinese connections. But it may not be enough.

As mentioned above, they could face accusations of being linked to or controlled by the Chinese government, of collecting or sharing user data with China for espionage or propaganda purposes, of violating user privacy or security rights, of infringing on intellectual property rights of other companies or countries, or of posing a competitive threat to local businesses or industries.

These accusations may lead to various consequences for these apps and their users. They could be banned or restricted from operating in certain markets or platforms. They could be sued or fined for violating laws or regulations. They could be boycotted or criticized by consumers or media outlets. They could lose access to suppliers or partners that are affected by sanctions or tariffs. They could face technical difficulties or glitches due to cyber-attacks or sabotage.

Only time will tell if this comes to be. In the meantime, and probably more importantly, we may need to wonder why some of the best apps out there are Chinese. Are we losing our edge? Maybe there are lessons to be learnt here, rather than relying on fear.

As Kai-Fu Lee, a former executive at Google and Microsoft who now runs an AI-focused venture capital firm in Beijing, said in a recent interview: “China has shown the world that innovation can happen anywhere”. Perhaps we should pay more attention to what these apps are doing right, rather than what they are doing wrong.

Good luck out there.

Also published here.