Beijing Frets Over Losing Control of TikTok as It Debates App's Fate
September 25 2020 - 11:00AM
Dow Jones News
By Liza Lin and Lingling Wei
Chinese officials weighing whether to approve or kill an
agreement to turn TikTok into a U.S.-based company are eager to
ensure that the short-video app's Chinese owner retains control
over its global operations and that TikTok's source code remains
secret.
TikTok parent ByteDance Ltd. said Thursday that it had submitted
to Chinese authorities its plan, which involves a partnership with
Oracle Corp. and Walmart Inc. Much uncertainty still surrounds the
proposed deal on both sides of the Pacific; Chinese state media has
criticized it as "dirty and unfair."
Officials at China's Commerce Ministry have pored over U.S.
media reports about the deal, and have been troubled by conflicting
accounts of who would have ultimate control of TikTok's world-wide
operations, according to people familiar with the matter.
They have also been concerned about reports that U.S. parties in
the agreement would be allowed to review TikTok's source code --
the basis of a computer program that companies generally consider
proprietarypeople said.
In the eyes of Chinese officials, the TikTok deal is broader
than simply a transaction by one company, people privy to the
discussions said. TikTok's fate touches upon China's "core
interests," such as protecting Chinese-developed intellectual
property from falling into foreign hands, they added.
TikTok, a social-media app known for its catchy dance and
lip-sync videos, shot to fame this year as the coronavirus confined
millions to their homes and they turned to the app for
entertainment. Its potential sale has captivated the global
business and investment community, drawn to its geopolitical
implications, unexpected twists and colorful personalities
involved.
TikTok's U.S. troubles began last November when the U.S.
Committee on Foreign Investment in the United States started a
national security review of the app, and accelerated in August when
President Donald Trump signed an executive order effectively
requiring TikTok to sell its U.S. operations or face an impending
ban.
The U.S. ban has since been challenged by a federal judge, who
asked Mr. Trump to postpone the ban or face questioning in
court.
After weeks of tense negotiation, Beijing-based ByteDance picked
Oracle Corp. and Walmart Inc. as U.S. partners, and said the two
would buy a 20% stake in TikTok Global, a new company spun off from
the Chinese parent to hold the social media app's world-wide
assets. TikTok Global would then seek an initial public stock
offering, the company said.
Still, the deal is far from done, with ByteDance and its
potential U.S. investors wrangling over terms and Mr. Trump
wavering in his support of the bid.
ByteDance has said it would directly hold an 80% share of the
new TikTok entity before the expected IPO, while an Oracle senior
executive said Americans will be the majority owners and ByteDance
will have no ownership in TikTok Global.
Walmart has said the technology would remain in TikTok Global's
possession, and concurred that the new company would be majority-
owned by U.S. investors.
Oracle would be able to review TikTok's source code and software
to make sure there are no back doors for the Chinese government to
gain access to data, The Wall Street Journal has reported. A main
U.S. concern about TikTok is whether China has access to personal
details the app captures from U.S. users.
As a Sunday deadline by the Trump administration for a ban of
TikTok from U.S. app stores draws closer, ByteDance said Thursday
that it had submitted a White House-supported plan to commerce
officials in Beijing for approval under newly changed tech export
control rules.
At the end of August, China updated a technology export-control
list for the second time in 20 years, widely seen as a move to give
Chinese authorities a say in the deal. This puts the decision to
go-ahead with the sale in China's hands.
Under the relevant law, a Chinese exporter would have to submit
an application to local commerce authorities before any transaction
involving technologies on the list takes place. Local commerce,
science and technology officials will then provide an answer within
30 working days on whether they can proceed with negotiations.
Chinese authorities have been mostly silent since Mr. Trump said
Saturday he had given the deal his blessings. But China's state
media has since run numerous editorials slamming the agreement as
"dirty and unfair," calling it an act of piracy by the U.S., and
lambasting how such a move would threaten China's national
security.
One person said ByteDance's staff was reprimanded by government
officials for not considering China's interests when negotiating
the deal.
Even so, another person said the Chinese side still sees room
for negotiation over the deal. For Beijing, Mr. Trump's agreement
to delay the ban until after the November presidential election
indicated his desire not to alienate the young American voters who
use TikTok, and that concern would work in China's favor, the
person said.
--Raffaele Huang contributed to this article.
(END) Dow Jones Newswires
September 25, 2020 10:45 ET (14:45 GMT)
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