TikTok: China’s new export rules mean quick sale of video app ‘unlikely’
- A quick sale of TikTok’s US operations is unlikely as China’s new rules around tech exports mean Beijing can determine the fate of a deal
- ByteDance can continue talks with buyers and skip government approval by excluding sensitive technology, such as its algorithm, sources say
ByteDance has said it will “strictly comply” with the new rules around tech exports released by the Ministry of Commerce and Ministry of Science and Technology at the weekend. It is the first time the controls, which cover TikTok’s algorithm, have been updated for more than a decade.
“ByteDance will have to go through the approval process in China as the TikTok deal in the United States involves transferring of such technologies,” said the company source, who declined to be identified.
“The Chinese government will have an important say in the deal … by blocking or delaying the process, which means a quick deal is very unlikely to take place.”
ByteDance could continue talks with potential buyers of TikTok and technically skip the government approval by excluding sensitive technology transfers in any deal, said a government source.
“In other words, ByteDance can sell all of TikTok but the algorithms,” said the source, who is involved in regulating ByteDance but not directly involved in technology export control.
Under the new rules, any sale that involves sensitive technology such as the push of personalised information based on data analysis requires ByteDance to file an application to a provincial level commerce ministry authority – for example, the Beijing Municipal Commerce Bureau – and the authority has up to 30 working days to approve the deal.
If the outline of the deal submitted by ByteDance is approved, the firm could start “substantive negotiations” with potential importers of the restricted technologies.
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ByteDance would then have to submit any contract for review to the commerce ministry authority, which would make a final decision on the deal within 15 working days. If approved, a technology export license certificate would be issued.
The approval process could be shorter as local governments have been working to streamline procedures. It would take 19 working days to obtain an export license certificate in Beijing after documents were filed, authorities said.
ByteDance has not announced whether it has filed any application.
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Trump said on Tuesday that if TikTok’s US operations were not sold by mid-September, “we close it up in this country”.
If ByteDance decides to strip out sensitive technology from a potential deal, it would start a burdensome process of defining what would be excluded and how the exclusions would affect the value of a deal.
Michael Priem, the chief executive of Minneapolis-based tech agency Modern Impact, said the most valuable part of TikTok for potential buyers is “the installed base of the fastest social growth platform” and maybe “their artificial intelligence”.
In addition, even if Beijing were to ban the transfer of ByteDance’s technologies to the US, a new owner of TikTok could find alternative suppliers since “there are some best practises that have proven to be some standard protocols”, Priem said. “I don’t want to say they’re completely commoditised, but they’re not something that only TikTok and ByteDance would understand or have.”
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The Chinese government has not announced it would demand ByteDance immediately file an application for a potential deal, although the Xinhua News Agency quoted a government adviser as saying the company should “seriously and carefully” consider suspending talks with potential bidders as a result of China’s update of the technology export control list.
The intervention of the Chinese government came after the Trump administration issued an executive order on August 14 demanding that ByteDance divest its US TikTok business or face a shutdown.
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The Chinese government had been relatively silent on the TikTok issue until this past weekend, although China’s foreign ministry has repeatedly voiced complaints about the Trump administration’s targeting of Chinese firms.
However, ByteDance, and its founder Zhang, have been accused at home of being too accommodating of the US attempt to “steal” TikTok, which has more than 100 million American users.
“For investors, the worst scenario would be a total ban of TikTok in the US,” the source said. “For ByteDance, the loss of the TikTok’s US market would be bearable because its key market is in China. And for the Chinese government, the worst case is if Washington were able to easily seize a Chinese asset.”