TikTok wants to distance itself from China, but the government is getting involved

BEIJING – China says it “strongly opposes” a forced sale of TikTok, underscoring the government’s commitment to the social media giant trying hard to distance itself from Beijing authorities.

The Commerce Ministry said on Thursday that a sale or spin-off of TikTok from its Beijing-based parent company ByteDance is under consideration Chinese Technology Export Law — which requires licenses for the export of certain technologies based on national security concerns. ByteDance also owns Douyin, the Chinese version of TikTok popular in the country.

“The Chinese government would make a decision in accordance with law,” spokesman Shu Jueting said in Chinese, as translated by CNBC.

Shu spoke at the ministry’s weekly press conference, hours before TikTok CEO Shou Zi Chew’s testimony before a US House of Representatives committee.

Lawmakers questioned Chew for more than five hoursand wanted clarity on TikTok’s ability to operate independently of Chinese influence on its parent.

ByteDance did not immediately respond to a request for comment on the Chinese Commerce Ministry’s comments.

The hearing did not appear to relieve US lawmakers.

“At the end of the day, it was clear from the testimony that Mr. Chew reports to the CEO of ByteDance. ByteDance controls TikTok,” Cameron Kelly, visiting fellow at the Brookings Institution, told CNBC’s “Squawk Box Asia” Friday. Kelly used to be the general counsel at the US Commerce Department from 2009 to 2013.

Kelly said the evidence that ByteDance has legal control over TikTok raises doubts among U.S. lawmakers about how well the app can demonstrate its independence through restructuring.

TikTok has a “Project Texas” plan to store US user data on US soil – in an attempt to prove the company’s claims that mainland Chinese authorities do not have access to it.

“I don’t think a shutdown, a ban or a complete divestment (of TikTok) is needed. But I do think you need to separate the legal control,” Kelly said, noting that could be done through a trust structure.

But the Commerce Ministry’s assertion of control over a TikTok sale or spinoff indicates Beijing wants in.

“The Chinese government’s public declaration that it would block the sale of TikTok in the United States has little to do with protecting Chinese algorithms and technology and a lot to do with giving Washington a taste of its own medicine,” Daniel Russel, vice president for international security and diplomacy, the Asia Society Policy Institute said in a statement.

“Beijing, after hearing (U.S. Commerce Secretary) Raymond’s complaint that banning TikTok would upset voters under 35, is now daring Congress and the administration to ‘make my day,'” Russel said.

The United States has increased restrictions on the ability of American companies and individuals to work with Chinese companies on critical technologies for advanced semiconductors.

Asked about the Commerce Ministry’s comments on Thursday, TikTok’s CEO said the app is not available in mainland China and is based in Los Angeles. But he said the company used some of ByteDance’s Chinese employees’ expertise on “engineering projects.”

Chew also told US lawmakers that China-based employees at its parent company ByteDance may still have access to some US databut the new data will stop flowing once the company completes its Project Texas plan.

Official Chinese comments have previously emphasized that China-based companies should comply with local laws and regulations when operating abroad.

It’s not immediately clear how China’s export control law, passed in December 2020, might apply to TikTok.

Different types of exports are handled by different government organizations, “each of which has a separate regulatory system,” the EU Chamber of Commerce in China said in its latest position paper. It called for greater clarity on the roles of the various agencies involved in the implementation of the Export Control Act.

“To be fair, there are certainly genuine national security risks associated with (TikTok) — and that’s one reason why banning the app from government phones and military phones makes sense,” said Glenn Gerstell, senior adviser at the Center for Strategic and International studies on CNBC’s “Street signs Asia” Friday. Gerstell was general counsel of the National Security Agency from 2015 to 2020.

“As far as the public is concerned, I don’t see the strategic value in China of understanding what a teenager’s dance moves in Minneapolis are. So the blanket ban doesn’t make sense to me,” he said.

TikTok has more than 150 million users in the US – or about half of the country’s population.

It is unclear whether the US will ultimately force ByteDance to sell TikTok or ban use of the app in the country. The very popular app is already banned from federal government units.

“We see a period of 3-6 months for ByteDance and TikTok to resolve a sale to a US tech player with a spin-off that is less likely and extremely complicated to execute,” said Dan Ives, analyst at Wedbush Securities. note.

“If ByteDance fights this forced sale, TikTok will likely be banned in the US by the end of 2023.”

— CNBC’s Lauren Feiner contributed to this report.