After the Bell – US attorney-general says Temu is functionally malware. Does he have a point?

America is a breeding ground for wild headlines, so when it comes to bizarre news, one never quite knows what’s real or what isn’t. 

For example:

Iguanas falling from the sky during a cold snap might sound outlandish, but it turns out that the reptiles’ battle to maintain their core body temperature, so when temperatures drop, they can temporarily go into a state of torpor where they lose muscle control and drop out of trees. 

A cat as an honorary mayor of a small town in Alaska? Turns out, “Stubbs” (a fitting name for a Manx-mix with a stubby tail) was “elected” honorary mayor of Talkeetna as a kitten in 1997 because residents weren’t delighted with the human candidates, so decided to add him to the ballot. 

Did Trump pay off Stormy Daniels to keep schtum about schtupping? Hell yes. 

This week a very strange story emerged, in which a US attorney-general referred to offshore online marketplace Temu as “functionally malware and spyware”.

Tim Griffin, the attorney-general for Arkansas – known variously as the “natural state” and the “bear state” and governed by Maga and Trump fan Sarah Huckabee Sanders – has announced that he is suing the Chinese e-commerce company for violations of the Arkansas Deceptive Trade Practices Act (ADTPA) and the Arkansas Personal Information Protection Act (Pipa), saying that it is “not an online marketplace like Amazon or Walmart”.

“[Temu] is a data-theft business that sells goods online as a means to an end. Today I have filed a first-of-its-kind state lawsuit against the parent companies of Temu — PDD Holdings Inc and WhaleCo Inc — for violating the ADTPA and Pipa. It is purposefully designed to gain unrestricted access to a user’s phone operating system. It can override data privacy settings on users’ devices, and it monetises this unauthorised collection of data.”

Temu, he argues, can access a user’s camera, specific location, contacts, text messages, documents and other applications in such a surreptitious way, it is undetected, even by sophisticated users. 

So far, not much of a stretch.

And the lawsuit against Temu is not the first time the company’s practices have faced scrutiny in the US. Last year, Apple removed Temu from its app store, prompting multiple investigations into the marketplace’s data collection practices. These investigations are ongoing, including one by the US Congress. 

But this is where he lost me: Griffin also believes that “Temu is led by a cadre of former Chinese Communist Party officials, which raises significant security risks to our country and our citizens”.

Temu’s parent company, PDD Holdings, certainly walks a tightrope: it is registered in the Cayman Islands with Chinese subsidiaries, leveraging an arrangement known as a variable interest entity (VIE), which involves a complex network of shell companies and contractual agreements allowing Chinese citizens to skirt a Chinese law that restricts citizen investment in foreign tech companies. It’s also publicly traded on the New York Stock Exchange.

Of course, this has raised eyebrows about the influence of the Chinese Communist Party (CCP) because regulators worry about potential CCP access to user data collected by PDD Holdings and its subsidiaries. 

Beyond potential CCP access, broader issues of consumer privacy and data security come into play and consumer data must certainly be protected from companies holding vast amounts of information.

That the underlying companies behind PDD Holdings are owned by Chinese people does not make the company or their products an arm of the Chinese Communist Party, says Snopes, which fact-checked and debunked most of these claims on 5 June – a year ago.

A Temu spokesperson told KARK 4 News on Thursday that the company was “surprised and disappointed” by Griffin’s lawsuit, without what it called “any independent fact-finding”, saying the allegations were “based on misinformation circulated online, primarily from a short-seller, and are totally unfounded”. They added they would “vigorously defend” the case.

In South Africa, our home-grown online marketplace Takealot has faced a wave of competition from the east (both Shein and Temu). For years, it’s also braced for the arrival of Amazon, although its concern is not what it believes to be fair competition. It says offshore online marketplaces such as Temu are not invested in South Africa and are highly aggressive on social media, driving up advertising costs which local companies are battling to match. 

The Takealot Group has incurred yet another massive loss, but is now counting on tax amendments that kick in on 1 July, that will level the playing field and prevent a “hollowing out” of local economic activity.

South Africa’s online retail sector was worth R71-billion last year. World Wide Worx predicts the sector will hit the R100-billion mark by 2026, capturing 10% of all national retail sales.

There’s much at stake. South Africa needs to protect the local economy by promoting healthy competition, not close its eyes to the cheap and cheerful. 

Good investing! 

Georgina

(Tim will be back next week.) DM