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Is Tencent the Next TikTok for Trump?

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Breaking: Johnson & Johnson announced that it has begun Phase 3 clinical trials for its Covid-19 vaccine candidate, which it says may be available for emergency use early next year.

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Although the Trump administration’s fight over TikTok is attracting the most attention, buzz is building in Washington about another Chinese tech giant: Tencent. We teamed up with our colleagues Ana Swanson and Erin Griffith to examine what’s at stake. (A representative for Tencent declined to comment.)

Tencent is a true internet colossus. The 22-year-old company has a market cap of more than $630 billion. It owns WeChat, a multi-feature messaging app with over one billion users worldwide, that was recently thrust into legal limbo by the Trump administration (discussed in more detail by the Deal Professor below). Tencent is also a prolific tech investor, taking stakes in hundreds of start-ups during the last decade. Over the past five years, it has been a part of more than 40 U.S. transactions with a combined value of more than $16 billion, according to Dealogic.

• Its investments in U.S.-based companies have included Activision Blizzard, Epic Games, Riot Games, Snap, Tesla and Uber.

The U.S. government is now interested in Tencent’s past deals. A 2018 law gave the Committee on Foreign Investment in the U.S., or Cfius, more resources to investigate transactions — including minority investments — that closed without being reviewed by the panel. The law also more specifically defined control of personal data as a national security concern. It gives the government the ability to investigate any deals that Tencent did not submit to government review.

• People involved in the creation of the rules said that they were developed largely to deal with a surge in Chinese investors taking minority stakes in Silicon Valley companies and a new appreciation of the power of personal data.

There are limits to the government’s powers. The Cfius panel can’t simply investigate any deal — it first must determine whether one qualifies as a “covered transaction.” There’s no specific calculus for arriving at that conclusion, but the panel’s staff asks about corporate governance, access to certain kinds of personal data (credit card information, for example, doesn’t typically qualify) and nonpublic financial information. If the panel determines that a deal is both reviewable and a potential concern, it can proceed with a full investigation (which is not always made public). That could lead to a recommendation that the president unwind the transaction.

The Tencent inquiries have already begun, with Cfius reaching out to gaming companies, including Epic Games and Riot Games:

• Tim Sweeney, the C.E.O. of Epic, described Tencent, which bought a 40 percent stake in his company in 2012, as a “really awesome partner, purely supportive, never hostile — and never in the least bit attempting to insert China influence into anything we do in the world outside of China.” He acknowledged a Cfius inquiry, adding that his company would “be participating in the process wholeheartedly.”

• A representative for Riot declined to comment.

Unwinding Tencent’s past deals would be a major escalation in the U.S.-China tech war. Along with Alibaba and Baidu, the company is a global symbol of China’s might. Chinese officials have said that the threat of a U.S. ban on WeChat “undermined the global market order.” They are said to be assembling a list of American companies to ban in China, including Cisco, should they need to respond in kind.

• It’s not clear whether these tensions would ease should Joe Biden win the election: He has also taken a hard-line stance on Beijing.

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Today’s DealBook Briefing was written by Andrew Ross Sorkin in Connecticut, Lauren Hirsch in New York, Ephrat Livni in Washington, and Michael J. de la Merced and Jason Karaian in London.

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ImageThe Fed chair Jay Powell, left, and Treasury Secretary Steven Mnuchin
Credit…Pool photo by Caroline Brehman/Reuters

Steven Mnuchin and Jay Powell offered cautious optimism on the economy. At a House hearing yesterday, Mr. Mnuchin, the Treasury secretary, praised the speed of the economic recovery, but acknowledged that few jobs lost because of the pandemic have been regained. Mr. Powell, the Fed chair, said the economy needed more stimulus to continue recuperating.

The House approved a bill to avoid a government shutdown. Congressional Democrats and the Trump administration agreed on a funding package that will run through Dec. 11 and includes extra money for farmers and school lunches. The plan still needs approval from the Senate and President Trump.

Tesla promises cheaper batteries and a $25,000 car. At the company’s “battery day” event yesterday, Elon Musk said the carmaker was working on less expensive, more powerful batteries — but cautioned that they required advances his team had yet to achieve. They could lead to a far cheaper electric vehicle, in three years’ time.

The F.D.A. dampened hopes for an imminent coronavirus vaccine. The agency is poised to announce stricter guidelines for giving emergency authorization to a treatment. That could push clearance of a Covid-19 vaccine to after the November elections, a far longer timeline than what President Trump has suggested.

Advertisers struck a deal with Facebook, Twitter and YouTube over harmful content. The pact established common definitions of content like hate speech and allowed for external auditors to monitor the system. Big advertisers like Unilever and Mars said the changes persuaded them to resume ad spending on those platforms.

Credit…Carlo Allegri/Reuters

The lender has priced its first Equality Progress Sustainability Bond. It’s a new take on environmental, social and governance finance meant to fund projects that support Black and Hispanic communities.

The $2 billion bond was inspired by the billionaire Robert Smith, who called for Corporate America to help reduce racial wealth inequality. The bank received more than $4 billion in orders, over half of which came from investors focused on sustainability and E.S.G.

The backdrop: While such E.S.G. bonds have taken off in recent years — aided by the business world’s growing interest in social issues — Bank of America executives believe this could set a template for financing focused on racial justice.

• Other companies addressing racial inequality include Netflix, which moved $100 million to banks that serve Black communities.

The details: Proceeds from Bank of America’s bond will be directed toward several areas, including affordable housing initiatives; investments in “minority depository institutions”; and direct investments in Black-owned businesses and in venture and private equity funds that back Black-owned companies.

• The project is being led by John Utendahl and Anne Finucane at Bank of America. Joint leads on the deal included Siebert Williams Shank, Loop Capital and Ramirez & Company.

Steven Davidoff Solomon, a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School of Law and the faculty co-director at the Berkeley Center for Law, Business and the Economy. Here, he looks at the legal wrangling over WeChat in the United States.

President Trump’s Aug. 6 executive order banning downloads of TikTok on U.S. platforms also applied to WeChat, and the fates of the Chinese-owned apps have diverged. But what happens to WeChat has implications for TikTok.

After the executive order, an organization known as the WeChat Users Alliance sued to challenge the ban. A day before the ban was scheduled to go into effect, a federal judge in the Northern District of California granted an injunction halting the order, pending a full trial on its merits.

The government is almost certain to appeal, but the circuit court judge was clever in protecting the injunction from reversal. Magistrate Judge Laurel Beeler declined to rule on whether Mr. Trump had the power to ban WeChat on national security grounds. Instead, the judge held that the order violated WeChat users’ First Amendment rights.

First Amendment cases require government restrictions be narrowly tailored, content-neutral and not reflect government preferences. The judge said there was insufficient evidence to justify the ban and suggested narrower alternatives, like banning the app from government devices.

I’m skeptical that the Supreme Court will allow the injunction to stand, for three reasons. First, the judge issued a national injunction, and the Supreme Court has been particularly critical of allowing one judge to enjoin a law across the whole country. Second, Chief Justice John Roberts in particular has been wary of allowing injunctions to decide the merits of a case. And finally, the national security concerns are real.

Nonetheless, this order will buy WeChat time — and time is what both WeChat and TikTok want right now.

WeChat’s victory is good news for TikTok, because it shows that the U.S. courts can provide some respite. So, if TikTok’s deal with Oracle falls through, it can argue in a California court that the government is violating due process in its varying demands for divesting the app’s U.S. operations. In other words, there are more legal battles to come in a war that seems likely to last for the rest of the year.

Credit…Andy Rain/EPA, via Shutterstock

As companies try to bring workers back to their desks, Britain shows how the best-laid plans can be thwarted.

Britain’s U-turn illustrates how quickly things can change. After weeks of urging workers to return to the office, a rise in cases prompted Prime Minister Boris Johnson to impose renewed restrictions and suggest that people work remotely if possible. London’s financial giants adopted more cautious measures. That could reverse a trend that saw the offices of JPMorgan Chase and Goldman Sachs return to about 30 percent capacity in recent weeks.

Barclays asked several hundred workers who had returned to stay home, while HSBC said it was pausing its plans to bring people back.

• Goldman and Citigroup emphasized in internal memos that their London offices were safe for employees who needed to work there, but urged workers to check with their managers if they had concerns about returning. Others, like JPMorgan, are waiting for further guidance from officials.

U.S. banks and hedge funds are still ramping up their return-to-work plans, with traders in particular being brought back, The Times’s Kate Kelly reports. And deal makers are increasingly feeling the urge to hit the road — or risk losing business to rivals who have resumed in-person meetings.

Credit…Carlos Barria/Reuters

Wells Fargo’s chief executive, Charlie Scharf, stoked outrage when comments he made this summer about the bank’s difficulty reaching diversity goals were reported by Reuters late yesterday. “While it might sound like an excuse, the unfortunate reality is that there is a very limited pool of black talent to recruit from,” he said in a memo to staff.

The old excuses don’t work anymore. Corporate advisers have repeatedly told DealBook that, when it comes to diversity, excuses like the one used by Mr. Scharf no longer fly. Among other things, they’ve told executives to think outside their typical recruitment requirements, for example by looking to human resources and legal teams for candidates for executive and board-level roles.

“Not only is this an excuse, but it’s plain laziness,” tweeted Dantley Davis, Twitter’s chief design officer. “I know way too many people in positions of power that spend more time surfing or playing ultimate frisbee on a weekday than building relationships with Black professionals.”

The first presidential debate is next Tuesday (Sept. 29), moderated by Chris Wallace of Fox News. The topics to be discussed include:

• The Trump and Biden records

• The Supreme Court

• Covid-19

• The economy

• Race and violence in cities

• The integrity of the election

On these themes, what questions would you ask the candidates? Let us know at dealbook@nytimes.com and include your name and location. We might include your response in a future newsletter.

Deals

• KKR is near a deal to buy 1-800 Contacts for more than $3 billion. (PR Newswire)

• United Wholesale Mortgage plans to go public through a merger with a Gores Group-run SPAC at a $16 billion valuation. (WSJ)

Politics and policy

• Congress gave the Pentagon $1 billion for coronavirus medical equipment. The money was instead spent on jet engine parts and body armor. (WaPo)

• Judy Shelton, President Trump’s nominee to the Fed board, is a champion of free markets — except when it comes to her backyard. (NYT)

Tech

• Amazon has reportedly limited how rival device makers buy ads on its site. (WSJ)

• Palantir’s latest I.P.O. prospectus shows just how little control shareholders have over the data-mining company. (TechCrunch)

Best of the rest

• Jeff Bezos is launching Bezos Academy, a free preschool for children from low-income families. (Forbes)

• A private equity financier who played a major role in the college admissions bribery scandal has pleaded guilty. (Los Angeles Times)

• The latest must-have for wealthy home buyers: “Amazon rooms” to store packages as they arrive. (Hollywood Reporter)

We’d love your feedback. Please email thoughts and suggestions to dealbook@nytimes.com.

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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