Visitors visit the TikTok booth at the Appliance & Electronics World Expo (AWE) in Shanghai, China, on April 27, 2023. On March 14, 2024, the United States will pass a bill banning TikTok.
Coast Photo | norphoto | Getty Images
The US may be on the verge of forcing ByteDance, the Chinese tech giant that owns TikTok, to divest its US business or effectively ban the app.
But a sale seems unlikely – not least because China is expected to block it.
The House of Representatives on Wednesday approved a bill that would require ByteDance to divest TikTok, the social media platform it owns, within about six months so the app can remain “available in the United States.” This bill has not yet become law and needs Senate approval.
Washington has long claimed that TikTok poses a national security threat because US data could end up in the hands of the Chinese government.
US lawmakers are also concerned about the short video app's alleged ties to the Chinese Communist Party, which the company has denied.
However, if the bill is approved, the Chinese government is unlikely to agree to divest TikTok's US business.
“The problem is that the Chinese government is unlikely to approve this kind of forced M&A,” Paul Triolo, an associate partner at consulting firm Albright Stonebridge, told CNBC’s “Street Signs Asia” on Thursday.
“Any kind of divestiture and then merger with another company or acquisition would have to be approved by the Chinese government, which would likely reject that and would probably advise ByteDance that they would reject that.”
What did China say?
Wang Wenbin, a spokesman for China's Foreign Ministry, said Thursday that the US bill “contravenes the principles of fair competition and international trade rules,” according to an NBC News translation.
“If the pretext of national security can be used to arbitrarily suppress excellent companies from other countries, there is no fairness or justice to speak of. It is a complete logic of theft to see something good and try to take it for yourself by any means necessary.”
China is widely expected to block an agreement, not least because this is not the first time this issue has arisen.
Last year, the US Committee for Foreign Investment in the United States (CFIUS) asked ByteDance to divest from TikTok or face a ban. At the time, Xu Guiting, a spokesman for China's Ministry of Commerce, said the country would “firmly oppose” the US move to authorize the sale of TikTok.
TikTok's algorithm is at the center
What makes the selling process even more complicated is TikTok's algorithm. This is the app's “secret sauce” and is the technology that enables it to recommend content to users to keep them engaged.
Last year, when the Committee on Foreign Investment in the United States asked ByteDance to sell TikTok, China's Xu addressed the matter, saying that divesting or selling would effectively mean exporting this technology, which would have to go through administrative licensing procedures.
China would have to agree to transfer the algorithm as part of the sale, which seems highly unlikely, Triolo said.
And it's hard to imagine how TikTok's US business could be separated from the algorithm if China doesn't want that to be part of the deal. TikTok requires an algorithm to function.
“This algorithm is home-grown Chinese technology, and the Chinese state has said on multiple occasions that it considers such technology important to its national security. Therefore, it will not allow Chinese technology of this kind to leave its shores,” Richard Windsor, founder of research firm Radio Free Mobile, said in a note. “Or to be in the hands of countries it considers unfriendly,” she posted on Monday.
“This makes severing ties between ByteDance and TikTok USA very problematic because TikTok USA needs the algorithm to work, but this would go against the wishes of the Chinese government and the laws it has put in place.”
Great TikTok Rating
TikTok is one of the biggest social media apps in the world, and poses a serious challenge to the likes of Facebook's owner dead And pop. TikTok was the most downloaded social media app in the United States in 2023, according to market insight firm Sensor Tower.
This makes TikTok a popular feature. TikTok's U.S. business alone is likely to be worth $60 billion, Angelo Zino, vice president and chief equity analyst at CFRA Research, told CNBC.
However, given the uncertainty around the algorithm, and Chinese government approval appearing unlikely, it is uncertain that TikTok's sale in the US will reach the evaluation stage.
— CNBC's Jonathan Vanian contributed to this report.
