Visitors visit TikTok’s booth at the Appliance & Show. April 27, 2023, Shanghai Electronics World Expo (AWE), China. On March 14, 2024, the United States will pass a bill banning TikTok.
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The United States may be close to forcing Chinese tech giant ByteDance, which owns TikTok, to divest its U.S. operations or effectively ban the app.
But a sale looks unlikely — not least because China is expected to block the sale.
The House of Representatives on Wednesday approved a bill requiring ByteDance to divest TikTok, the social media platform it owns, in about six months so that the app “can continue to be used in the United States.” The legislation has not yet become law and requires Senate approval.
Washington has long viewed TikTok as a national security threat because U.S. data could fall into the hands of the Chinese government.
U.S. lawmakers are also concerned about the short-video app’s alleged ties to the Chinese Communist Party, which the company denies.
However, if the bill passes, the Chinese government is unlikely to approve the divestment of TikTok’s U.S. operations.
“The problem is that the Chinese government is unlikely to approve such a forced… merger,” Paul Triolo, an associate partner at consulting firm Albright Stonebridge, told CNBC’s “Street Signs Asia” on Thursday.
“Any form of divestiture and merger or acquisition with another company must be approved by the Chinese government, which may reject such an approach and may advise ByteDance to refuse to do so.”
What did China say?
According to NBC News, Chinese Foreign Ministry spokesperson Wang Wenbin said on Thursday that the U.S. bill “does not comply with the principles of fair competition and international trade rules.”
“If national security can be used as an excuse to arbitrarily suppress outstanding companies from other countries, there will be no fairness and justice. It is completely theft logic to accept what is good and take it for one’s own by any means.” It is necessary. “
China is widely expected to block the deal, especially since this is not the first time this issue has arisen.
Last year, the Committee on Foreign Investment in the United States (CFIUS) Tell ByteDance to spin off TikTok or face a ban. At that time, Chinese Ministry of Commerce spokesperson Shu Jueting said that China would “firmly oppose” the United States’ forced sale of TikTok.
TikTok algorithm-centric
What makes selling even more complicated is TikTok’s algorithm. This is the app’s “secret sauce” and the technology that enables it to recommend content to users to keep them engaged.
When the Committee on Foreign Investment in the United States asked ByteDance to sell TikTok last year, China’s Mr. Shu responded by saying that a divestment or sale would effectively mean exporting the technology, which must go through an administrative licensing process.
Triolo said China would have to approve the transfer of the algorithm as part of the sale – something that seemed unlikely.
If China doesn’t want algorithms to be part of the deal, it’s hard to imagine how TikTok’s U.S. operations could be separated from the algorithm. TikTok requires algorithms to work.
“This algorithm is Chinese indigenous technology, and the Chinese government has repeatedly stated that it considers such technology important to its national security. Therefore, it will not allow Chinese technology of this nature to leave its soil.” Founder of research company Radio Free Mobile Richard Windsor said in a report released on Monday:
“This makes severing the relationship between ByteDance and TikTok USA very problematic because TikTok USA requires algorithms to run, but this would go against the wishes of the Chinese government and the laws it has enacted.”
TikTok’s valuation is high
TikTok is one of the world’s largest social media apps, posing a serious challenge to companies like Facebook’s owner Yuan and break. TikTok is the most downloaded social media app in the United States in 2023, according to market insights company Sensor Tower.
This makes TikTok a hot property. Angelo Zino, vice president and senior equity analyst at CFRA Research, told CNBC that TikTok’s U.S.-only business “could be valued at more than $60 billion.”
However, given the uncertainty of the algorithm and the seeming improbability of Chinese government approval, it is far from certain that U.S. TikTok sales will reach the valuation stage.
—CNBC’s Jonathan Vanian contributed to this report.
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