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.
CostFoto | Nurphoto | Getty Images
The US could force ByteDance, the Chinese tech giant that owns TikTok, to divest its US operations or effectively ban the app.
But a sale looks unlikely – not least because China is expected to block it.
The House on Wednesday approved a bill requiring ByteDance to divest TikTok, the social media platform it owns, within about six months in order for the app to “remain available in the United States.” This legislation is not yet law and needs approval by the Senate.
Washington has long argued that TikTok poses a national security threat as US data could fall into the hands of the Chinese government.
Lawmakers in the US are also concerned about the short video app’s alleged ties to the Chinese Communist Party, which the company has denied.
If the bill passes, however, the Chinese government is unlikely to approve the divestment of TikTok’s US operations.
“The problem is that the Chinese government is unlikely to approve this kind of forced … merger and acquisition,” Paul Triolo, a partner at consulting firm Albright Stonebridge, told CNBC’s “Street Signs Asia” on Thursday.
“Any kind of divestiture and then a merger with another company or a takeover would have to be approved by the Chinese government, which would probably reject it and is probably advising ByteDance that it would reject it.”
What did China say?
Wang Wenbin, a spokesman for China’s foreign ministry, said Thursday that the US bill “contradicts the principles of fair competition and the rules of international trade,” according to a translation by NBC News.
“If the pretext of national security can be used to arbitrarily suppress excellent companies from other countries, there is no justice or fairness to speak of. It is complete theft logic to see something good and try to take it for yourself at any cost means necessary.”
China is widely expected to block a deal, largely because it is not the first time the issue has arisen.
Last year, the Committee on Foreign Investment in the United States (CFIUS) told ByteDance to divest TikTok or face a ban. At the time, Shu Jueting, a spokesman for China’s Ministry of Commerce, said the country would “strongly oppose” a US move to force the sale of TikTok.
The TikTok algorithm at the center
Further complicating a sale is TikTok’s algorithm. This is the app’s “secret sauce” and is the technology that allows it to recommend content to users to keep them engaged.
Last year, when CFIUS told ByteDance to sell TikTok, China’s Shu countered that, saying an assignment or sale would effectively mean exporting that technology, which must go through administrative licensing processes.
China would have to approve the transfer of the algorithm as part of the sale, Triolo said — which seems highly unlikely.
And it’s hard to imagine how TikTok’s American business could be separated from the algorithm if China didn’t want that to be part of the deal. TikTok requires the algorithm to work.
“This algorithm is Chinese domestic technology and the Chinese state has said this many times [it] considers technology like this important to its national security. Therefore, it will not allow Chinese technology of this kind to leave its shores or end up in the hands of countries it considers unfriendly,” Richard Windsor, founder of research firm Radio Free Mobile, said in a note published Monday.
“This makes severing the ties between ByteDance and TikTok USA extremely problematic, as TikTok USA needs the algorithm to operate, but that would be against the wishes of the Chinese government and the laws it has put in place.”
The great valuation of TikTok
TikTok is one of the biggest social networking apps in the world, which poses a serious challenge to the owners of Facebook After and Break. TikTok was the most downloaded social media app in the US in 2023, according to market intelligence firm Sensor Tower.
This makes TikTok a hot property. Angelo Zino, vice president and senior equity analyst at CFRA Research, told CNBC that it’s possible that TikTok’s business in the US alone “could reach a $60 billion valuation.”
Given the uncertainty surrounding the algorithm, however, and Chinese government approval looking unlikely, it’s not certain that a TikTok sale in the US would even make it to the valuation stage.
— CNBC’s Jonathan Vanian contributed to this report.