By Liza Lin
A White House-approved plan to transform TikTok into a
U.S.-based company would keep the operation of the viral
short-video app, and likely the algorithm that has powered its
rise, in Chinese hands. This structure improves the deal's chances
of finding favor in Beijing, which had threatened to veto a
sale.
President Trump said Saturday he had given his blessing to a
deal that would see TikTok partner with Oracle Corp. and Walmart
Inc. to form a new entity called TikTok Global that would provide
services to TikTok's current users in the U.S. and most of the
world outside China.
Under the terms of the deal, TikTok's parent, Beijing-based
ByteDance Ltd., would retain roughly 80% ownership of the new
company, with Oracle and Walmart holding the rest, people familiar
with the situation told The Wall Street Journal earlier. Because
ByteDance is roughly 40% owned by U.S. investors, the new company,
with the Oracle and Walmart stakes, could be described as having
majority American ownership, they said. How ownership would be
distributed among ByteDance and its investors is still in flux,
according to various accounts from people familiar with the
discussions.
On Monday, Bytedance issued a statement dismissing as rumor
reports that TikTok Global's majority investors would be American
and Bytedance would lose control of TikTok. Instead, it said,
TikTok Global would be created as a wholly owned subsidiary of
ByteDance that would raise a round of funding, which would reduce
ByteDance's shareholding to 80% of the new company. A planned
initial public offering next year would reduce the Chinese
company's stake further.
At the same time, ByteDance's 80% stake in TikTok would allay
fears in Beijing that the White House was forcing China to
relinquish one of the world's hottest technology properties -- or
face a ban in the critical U.S. market.
At least in the short term, people close to the company and
market observers described the arrangement as a win for China and
for ByteDance.
A joint statement on the deal released Saturday by Oracle and
Walmart didn't mention any transfer of TikTok's core algorithms,
the artificial intelligence-driven content-recommendation engine
widely acknowledged to be vital to its success.
Last month, Beijing imposed restrictions on the export of
artificial-intelligence technology, in a surprise move that threw a
monkey wrench into ByteDance's negotiations with a handful of
U.S.-based suitors. A person familiar with the company said the
technology and core algorithms would be retained by ByteDance.
Trump's signoff on TikTok's deal with Oracle is a sign that the
hardest part of the ordeal is over, though the U.S. government
still has to process the details of the agreement, Zhang Yansheng,
an economics professor at Renmin University, said Sunday. Beijing's
main concerns are about the sale of TikTok's algorithm and U.S.
ownership of the app, both of which seem to be addressed in the
deal, he said.
"China will care about whether or not this company is still
Chinese," Mr. Zhang said.
Hu Xijin, the editor in chief of the Global Times, a Communist
Party-backed tabloid, said the deal was unfair, but less costly for
ByteDance than a full shutdown or sale of TikTok's U.S.
operations.
"The plan shows that ByteDance's moves to defend its legitimate
rights have to some extent worked," he wrote in a commentary
published Sunday. He also credited the Chinese government's
imposition of the technology export restrictions late last month
with having led to a better outcome for Beijing.
Since the new limits were announced, ByteDance has discussed the
potential sale in talks with both China's internet regulator and
the Ministry of Commerce, according to people familiar with the
talks.
Still, the forced sale of a piece of one of the world's hottest
internet properties angered many in China, including Fang Xingdong,
a former internet entrepreneur and founder of Beijing-based think
tank China Labs, who described it in an interview Sunday as
"daylight robbery."
The Chinese government hasn't commented on the latest iteration
of the deal or Mr. Trump's endorsement of it. China's Ministry of
Foreign Affairs and Ministry of Commerce didn't immediately respond
to requests for comment.
The TikTok saga has rattled China's government and technology
industry. The app's addictive content proved to be the perfect
distraction for millions of people forced to stay home because of
the coronavirus pandemic, turning it into the world's hottest new
social media sensation this year.
Just as its popularity was peaking, it got drawn into
geopolitical tensions between Washington and Beijing, with Mr.
Trump threatening to block it in the U.S. on national security
grounds -- unless it was sold to American buyers.
When China imposed the technology export restrictions, some
analysts wondered whether a deal could be made that would satisfy
both Washington and Beijing, not to mention ByteDance and any
prospective American partners.
At stake was an app that has averaged roughly 7.6 million
installations each month in the U.S. this year on Apple Inc.'s App
Store and Alphabet Inc.'s Google Play store, with the peak of the
frenzy coming in March, around the time of the start of the
Covid-19 pandemic, according to data from Sensor Tower, an
analytics firm.
The fight over TikTok served as a symbolic boon to China's tech
industry in that it showed the country is capable of creating a
global tech asset that became the envy of Silicon Valley, said
Peter Fuhrman, the Shenzhen-based chairman and chief executive
officer of China First Capital, an investment advisory firm.
"The bottom line of what this means for China tech is soft
power. It's inspiration and affirmation that Chinese tech companies
can achieve such heights," Mr. Fuhrman said.
Even so, analysts warned that the episode would likely encourage
Chinese companies to direct their focus inward, rather than pursue
global expansion, given the geopolitical headwinds -- a shift in
mind-set that could have long-term implications for the Communist
Party's goal of turning the country into a global internet
power.
TikTok's troubles are likely to reinforce a shift already under
way in China to focus more heavily on developing the country's
domestic market, in part as a response to a more hostile political
environment abroad.
"For Chinese firms to survive and expand, an important life
skill they will need to know is how to deal with such robbery,
which is essential to protect themselves," said Mr. Fang, the
former entrepreneur.
Even if Chinese firms are forced to curb their overseas
ambitions, there is still ample scope for expansion within China,
said a senior executive at a Chinese technology giant, who declined
to be named because of the sensitivity of the matter. Consumer
demand in China's smaller cities is still strong and growing, the
person said.
Some analysts were less sympathetic, describing the blowback
against TikTok's global conquest as a natural response to Beijing's
own actions to block Facebook Inc., Twitter Inc. and other U.S.
technology firms.
By erecting a wall around its own internet and shutting out
foreign companies through censorship and investment restrictions,
said Hosuk Lee-Makiyama, director of the Brussels-based European
Center for International Political Economy, Beijing opened its
companies up to these geopolitical concerns.
"Mainland China is now finally realizing there is a cost to pay
for the Balkanization it created," Mr. Lee-Makiyama said.
--Eva Xiao and Raffaele Huang contributed to this article.
Write to Liza Lin at Liza.Lin@wsj.com
(END) Dow Jones Newswires
September 21, 2020 07:57 ET (11:57 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Walmart (NYSE:WMT)
Historical Stock Chart
From Aug 2024 to Sep 2024
Walmart (NYSE:WMT)
Historical Stock Chart
From Sep 2023 to Sep 2024