TikTok Is Short-Form China-US Decoupling

Logos of ByteDance and TicTok

THE CONUNDRUM OVER what to do about the US business of ByteDance video app TikTok is a microcosm of China-US tech decoupling.

The US government wants to disengage TikTok’s US business from any governance structure in which the Chinese government could have legal access to the data of US users or potentially use the app as a channel for propaganda and disinformation campaigns.

In 2018, former President Donald Trump ordered TikTok’s US business to be sold to a US company or be banned in the United States. Neither happened after legal challenges to the order, and Trump’s successor Joe Biden eventually rescinded it.

However, almost five years on, Biden finds himself in the same position as Trump — threatening TikTok with a ban if it does not sell its US business to US owners.

Months of negotiations under the auspices of the Committee on Foreign Investment in the United States (CIFIUS) between TikTok and the Biden administration to ringfence the US business in a way that would satisfy Washington’s security concerns are deadlocked. Under TikTok’s proposed Project Texas, US tech giant Oracle would store US TikTok users’ data and safeguard the US service against any Chinese influence over what content US users see.

However, what would be considered an acceptable outcome to Washington would not necessarily be similarly regarded in Beijing, where ByteDance’s recommendation algorithm, considered the secret sauce of TikTok’s commercial success, is viewed as a national security asset that should not fall into the hands of a foreign owner.

There is the rub. Without the algorithm, TikTok has significantly less value to any US purchaser than with it. With the algorithm, any purchaser would face the same US national security concerns as TikTok.

Beijing would likely block ByteDance from selling TikTok’s US business under any arrangements — either a spin-off or an outright sale — that included the algorithm or the capacity to replicate it.

At this point, Beijing’s public stance is to admonish the United States for using national security grounds to hobble and suppress foreign companies, a line repeated by Foreign Ministry spokesman Wang Wenbin on March 16.

However, this Bystander understands that the guidance officials are giving the company is to protect its intellectual property and overseas operations.

ByteDance is a private, not a state, company, with 60% of its shares owned by global investors. However, the 20% owned by its Chinese founders have outsized voting rights, and the company is based in Beijing and subject to Chinese law.

After the crackdown on the sector in the past couple of years, Chinese tech firms understand their unstated obligation to align with national interests determined by central leadership.

Few US companies would be able to acquire TikTok’s US business, which could cost up to $100 billion. The giant tech platforms Meta and Google would be ruled out on anti-trust grounds. Microsoft and Oracle, which was part of an abortive bid from WalMart for TikTok in 2018, are among the most likely bidders, along with a consortium of private equity firms, probably involving Sequoia Capital, KKR and General Atlantic, three US venture firms that are investors in ByteDance; Sequoia Capital was involved in the Oracle/WalMart bid.

Even if a sale could be pulled off, separating TikTok’s US operations from the rest of its business would be complex, especially if the recommendation algorithm has to be extracted. Like the broader China-US relationship, the systems are tightly enmeshed and would take a long time to separate.


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Filed under China-U.S., Media, Technology

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