The US may be about to force ByteDance, the Chinese internet behemoth that owns TikTok, to divest its U.S. operations or effectively prohibit the app.
However, a sale is doubtful, not least because China is anticipated to reject it.
On Wednesday, the House approved a bill requiring ByteDance to divest TikTok, the social media platform it owns, within six months in order for the app “to remain available in the United States.” This measure is not yet law and requires Senate ratification.
Washington has long argued that TikTok posed a national security threat because American data could fall into the hands of the Chinese authorities.
Lawmakers in the United States are also concerned about the short video app’s purported links to the Chinese Communist Party, which the business denies.
If the bill passes, the Chinese government is unlikely to approve the divestment of TikTok’s US operations.
According to Paul Triolo, an associate partner at consultancy company Albright Stonebridge, forced mergers and acquisitions are unlikely to be approved by the Chinese government.
“Any kind of divestiture and then merger with another company or acquisition would have to be approved by the Chinese government, which would probably reject that and is probably advising ByteDance that it would reject that.”
What did China say?
According to an NBC News translation, Wang Wenbin, a spokesperson for China’s Ministry of Foreign Affairs, stated on Thursday that the US bill violates the principles of fair competition and international trade rules.
“There is no fairness or justice in using the guise of national security to arbitrarily repress good enterprises from other countries. It is the very definition of theft to see something beautiful and try to take it for yourself by whatever means necessary.”
China is widely expected to oppose a deal, not least since this isn’t the first time the subject has come up.
Last year, the US Committee on Foreign Investment in the United States (CFIUS) ordered ByteDance to divest TikTok or face a ban. Shu Jueting, a representative for China’s Ministry of Commerce, stated at the time that the government would “firmly oppose” a US initiative to force the selling of TikTok.
TikTok algorithm in the center
TikTok’s algorithm confuses sales even further. This is the app’s “secret sauce”—the technology that allows it to recommend material to users and keep them interested.
When CFIUS instructed ByteDance to sell TikTok last year, China’s Shu responded by stating that a divestiture or sale would effectively mean exporting this technology, which requires administrative licensing procedures.
Triolo stated that China would have to approve the transfer of the algorithm as part of the deal, which seemed highly unlikely.
And it’s difficult to see how TikTok’s US operations could be separated from the algorithm if China didn’t want that to be part of the deal. TikTok requires an algorithm to function.
“This algorithm is Chinese-developed technology, and the Chinese government has stated on numerous occasions that it regards such technology as critical to national security.” As a result, it will not allow Chinese technology of this sort to leave its shores or fall into the hands of countries it considers unfriendly,” said Richard Windsor, founder of research firm Radio Free Mobile, in a note issued Monday.
“This makes a severing of ties between ByteDance and TikTok USA highly problematic as TikTok USA needs the algorithm to function, but this will contravene the wishes of the Chinese government and the laws it has put in place.”
TikTok’s massive valuation
TikTok, one of the world’s biggest social media apps, poses a serious challenge to Facebook owner Meta and Snapchat. TikTok was the most popular social media app in the United States in 2023, according to market intelligence firm Sensor Tower.
That makes TikTok an attractive property. Angelo Zino, a vice president and senior equity analyst at CFRA Research, told CNBC that TikTok’s US-only business “could fetch a valuation north of $60 billion.”
Given the uncertainties surrounding the algorithm, as well as the likelihood of Chinese government permission, it is improbable that a TikTok sale in the United States will even reach the valuation stage.
— CNBC’s Jonathan Vanian contributed to this story.
