Why Washington may force TikTok’s Chinese owner to sell
Generation Z loves TikTok. President Trump has threatened to ban it. Secretary of State Mike Pompeo calls it a national security threat. And now the White House, according to a Bloomberg report, is preparing an order to force TikTok’s Chinese parent company, ByteDance, to sell it off, presumably to a US company.
The Trump administration’s choice of an app that teenagers use to share comedy skits and dance moves as its cyberdefence beachhead, despite an absence of any proof the app has been used against US interests, is pure 2020, with the president swirling hard-headed concerns about national security and corporate espionage into a broader campaign of economic and diplomatic gamesmanship against an increasingly powerful rival. Early in July he told television interviewer Greta Van Susteren that he viewed banning TikTok as one way to retaliate against China’s handling of the coronavirus outbreak.
In a news conference Thursday, with US coronavirus deaths rising past 150,000, Trump said: “It’s China’s fault. And that’s the way it is.”
The message may be muddy, but it’s clear China is on a quest to compromise information systems and pull in as much data about Americans as it can, said William J Holstein, a China analyst and technology hawk.
“China is engaging in information systems warfare on a global scale,” said Holstein, author of “The New Art of War: China’s Deep Strategy Inside the United States.”
“It seems silly, but I don’t think they’re really interested in 17-year-olds doing somersaults,” Holstein said. “They’re looking for information that helps them get into systems. Let’s say you work in military high tech, and they access your daughter’s phone. They can use that information to try to access your own phone, your email, your computer.”
To date, however, no one has produced evidence that China is using TikTok in this way.
“There’s never been any smoking-gun evidence (the Chinese government has) manipulated TikTok or stolen user data,” said Alec Stapp, director of technology policy at the Progressive Policy Institute. “The app asks for a lot of user data, but so do US apps.”
Still, several government agencies have ordered employees to remove the app from their phones. App researchers have discovered that TikTok was copying the clipboard data in iPhones every few seconds. TikTok had said that was an anti-spam measure and ended the practice after it was publicized.
After the president first threatened a ban, TikTok issued a statement: “TikTok is led by an American CEO, with hundreds of employees and key leaders across safety, security, product, and public policy here in the US. We have never provided user data to the Chinese government, nor would we do so if asked.”
The company hired former Walt Disney Co executive Kevin Mayer as chief executive of TikTok and chief operating officer of ByteDance in May.
In response to Friday’s report of a forced sale, TikTok issued another statement: “While we do not comment on rumors or speculation, we are confident in the long-term success of TikTok. Hundreds of millions of people come to TikTok for entertainment and connection, including our community of creators and artists who are building livelihoods from the platform. We’re motivated by their passion and creativity, and committed to protecting their privacy and safety as we continue working to bring joy to families and meaningful careers to those who create on our platform.”
TikTok is not the first tech company caught in the middle of this international power struggle. Though Apple has found a huge market for its iPhones in China, big American internet and app companies have largely been frozen out. Facebook, Google and Twitter were blocked in 2009; Instagram in 2014; and Reddit in 2018. Millions of users in China, however, are believed to be circumventing such blocks with virtual private networks.
For years, the White House has lambasted Huawei, China’s leading telecommunications equipment provider, which is attempting to install advanced 5G cellular systems in countries around the world. Critics say Huawei could use such networks for spying on data streams. Huawei consistently insists it has no such intentions.
In March, Beijing Kunlun Tech, then the Chinese owner of the LGBTQ dating app Grindr, sold a 98 per cent stake in the company to a US private equity company under pressure from the US government after it was found that Grindr engineers in Beijing could access personal data on US users, including their private messages and HIV status.
If the Trump administration forces ByteDance to sell TikTok, the list of potential buyers is relatively short, with Microsoft at the head of the line. The Redmond, Washington-based software giant, which paid 26 billion dollars to acquire LinkedIn in 2016, is reportedly in talks about what would be another blockbuster acquisition.
Wall Street stock analyst Dan Ives of Wedbush Securities told The Times that in his view Microsoft is the only company with the means and the desire to buy an app reportedly valued by ByteDance’s investors at 50 billion dollars – nearly the combined market value of Twitter and Snap. Amazon, Facebook, Apple and Google, the other obvious candidates, have their own problems right now: “They’re up to their eyeballs in a regulatory swirl, the last thing they’re going to do is buy TikTok,” Ives said, with the chief executives of all four companies called to testify at a House of Representatives antitrust hearing Wednesday.
Were they not under such scrutiny, TikTok would make a tempting acquisition target. The app has been downloaded more than 165 million times in the US, according to the Sensor Tower app analytics firm, and billions of TikTok videos have been uploaded. As of July 22, it was the most frequently downloaded app worldwide and No. 2 in the US after Zoom (whose ties to China have raised security concerns of their own within US companies and government entities). According to Sensor Tower, the rate of TikTok installation on US devices has not slowed since the Trump administration first raised concerns, suggesting consumers, as yet, have not been deterred.
Microsoft did not respond to a request for comment.
There’s also a question about Trump’s ability to force a sale. “I don’t see how they could force ByteDance to do anything like this, because it’s a Chinese company,” Holstein said. “Although they could block it from the American market, using the Committee on Foreign Investment in the US as the tool.” The committee is a federal interagency group that reviews foreign investments and other transactions for national security implications.
Justin Sherman, a fellow with the Cyber Statecraft Initiative at the Atlantic Council, said the Trump administration still has not laid out a clear justification for why TikTok should undergo a forced sale, with the Committee on Foreign Investment continuing to investigate. The argument for Grindr to lose its Chinese owners was outlined more clearly, Sherman said.
Ironically, a rushed sale to Microsoft or another buyer may be a sign any national security concerns around TikTok were overblown, said Stapp, noting that the Chinese government would have to sign off on the deal.
“The risk here is that the US. eventually bans TikTok almost permanently, and then that asset goes to zero, destroying 50 billion dollars,” Stapp said. “It’s a bad economic outcome.”
But if the Chinese government were relying on “geopolitical considerations,” he said, TikTok’s owner “wouldn’t be seriously considering selling right now.”