By Georgia Wells and Cara Lombardo
Plans to quickly complete a deal between the Chinese parent
company of TikTok and suitors for the app's U.S. operations have
been thrown off track as the parties huddled over the weekend to
weigh new Chinese restrictions that appear designed to affect a
potential sale, according to people familiar with the
discussions.
China late on Friday issued new restrictions on the export of
artificial-intelligence technology that forced ByteDance Ltd.,
TikTok's parent, to slow down talks with companies including
Microsoft Corp., Walmart Inc. and Oracle Corp. for a portion of the
social-media app, according to people familiar with the matter.
ByteDance, which had received the broad outlines of bids on
Friday for the TikTok assets, had been expected to enter into
exclusive discussions with one group of suitors over the weekend,
the people said. The Trump administration in early August set a
mid-September deadline for ByteDance to sell its American
operation.
Microsoft and Walmart have been working together, and Oracle
also has been joined by ByteDance investors General Atlantic,
Sequoia Capital and Coatue Management LLC.
"We are studying the new regulations that were released Friday,"
ByteDance General Counsel Erich Andersen said. "As with any
cross-border transaction, we will follow the applicable laws, which
in this case include those of the U.S. and China."
The talks are far from being scuttled, but the latest
developments do make clear that China plans to keep as close a
watch on any potential deal as the Trump administration. President
Trump and other U.S. officials have raised the specter of privacy
and national-security concerns over TikTok's data collection in
demanding that its U.S. operations be sold or that it face a ban.
TikTok has said it hasn't and won't share data on U.S. users with
the Chinese government.
ByteDance has sued the U.S. government in federal court, saying
that it protects user data and challenging an executive order from
Mr. Trump that would effectively ban the video-sharing app if a
buyer for its U.S. operations can't be found.
The new Chinese restrictions highlight the extent to which
TikTok, a breakout social-media hit -- especially with younger U.S.
users -- has been thrust into a geopolitical contest between the
U.S. and China over the future of global technology. China's move
to give the government a say in the outcome is an attempt to level
the playing field with the U.S. and could affect other Chinese
companies, some of the people said.
"We're seeing geopolitical tension between the U.S. and China,
and we are in the middle of that," TikTok interim head Vanessa
Pappas said in an interview with the "Today" show in mid-August,
before China announced its new restrictions.
Those involved in discussions on a potential sale said they
don't yet have a complete understanding of how China will enforce
the strictures, which were unveiled by the country's ministries in
charge of commerce and science and technology.
They cover such computing and data-processing technologies as
text analysis, content recommendation, speech modeling and
voice-recognition. Technologies on the list can't be exported
without a license from local commerce authorities.
On Saturday, China's official Xinhua News Agency quoted a
government trade adviser as saying that ByteDance should study the
new export list and "seriously and cautiously" consider whether or
not it should halt its sales negotiations.
The adviser, University of International Business and Economics
professor Cui Fan, told Xinhua that ByteDance owes its success
internationally to China's domestic technology prowess and
providing updated algorithms to firms overseas is a form of
technology export. That means that no matter who is the new
operator of ByteDance's international business, there likely will
be some cross-border technology transfer, he said.
ByteDance said in a statement on Sunday that it was aware of the
new restrictions and will "strictly comply with" China's
regulations on tech exports.
The comment in official Chinese media, often a means for the
government to make its intentions or interests clear on a given
issue, and the new rules in part appear to mirror U.S. regulations
that limit technology transfer in mergers involving U.S. companies
and foreign buyers.
The updated list of banned and restricted technology exports,
which spans agriculture, pharmaceutical and other industries, also
specified new restrictions on laser technology, cryptography, chip
design and other high-tech categories.
The continuing conflict between the U.S. and China, which
earlier in the Trump administration was focused on tariffs, has
come to focus increasingly on technology. In addition to TikTok,
the White House also has targeted a growing number of Chinese tech
firms, namely telecom giant Huawei Technologies Co. and Tencent
Holdings Ltd.
Over the past two years, the U.S. government has campaigned to
blacklist Huawei's 5G technology globally -- with increasing
effectiveness -- citing security risks associated with its ties to
the Chinese government. The Trump administration also has curbed
Huawei's access to foreign-made chips, squeezing its ability to
source parts.
Tencent's messaging app WeChat, which serves as a crucial bridge
between U.S. businesses and the Chinese market, faces the same
effective ban as the TikTok app, on national-security grounds.
Tencent has said that the president's early August executive
order appears to apply only to the international version of WeChat,
meaning the majority of the app's business, as well as other
business units, would remain intact. Huawei said earlier this year
that it "has never and will never do anything that would compromise
or endanger the security of networks and data of its clients."
--Miriam Gottfried, Eva Xiao and Liza Lin contributed to this
article.
Write to Georgia Wells at Georgia.Wells@wsj.com and Cara
Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
August 30, 2020 20:42 ET (00:42 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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