TikTok caught in cross­fire of US and China trade war

The video shar­ing plat­form’s future de­pends on who owns it and where the HQ is, re­port James Cook and Han­nah Boland

The Daily Telegraph - Business - - Technology Intelligen­ce -

TikTok is spy­ing on you” read the ad­verts plas­tered over Face­book by the Trump cam­paign. “Do you think we should ban TikTok? Sign the pe­ti­tion NOW!” Trump’s dra­matic ads, which be­gan to ap­pear on Fri­day, are just the lat­est in a grow­ing cam­paign by the US against the Chi­nese com­pany.

Founded in 2016 by ByteDance, one of the world’s most-valu­able start-ups, TikTok has surged in pop­u­lar­ity with its vi­ral dance rou­tines and com­edy sketches. The app has about 800m users world­wide and has been down­loaded more than two bil­lion times. How­ever, it could soon find it­self banned in the US following concerns that it poses a na­tional se­cu­rity risk by send­ing user data to China – something the com­pany has re­peat­edly de­nied.

“Geopol­i­tics used to be de­fined by oil and nat­u­ral gas. Now it’s be­ing de­fined by emerg­ing tech­nolo­gies,” says Abishur Prakash, the head of the Cen­tre for In­no­vat­ing the Future in Canada. “The rea­son why TikTok is in the crosshairs is be­cause it rep­re­sents the beginning of Chi­nese tech­no­log­i­cal ecosys­tems that un­til now have been largely de­fined by the US.”

The prospect of a ban could force ByteDance to sell a ma­jor­ity stake in TikTok, aban­don­ing an app which has seen me­te­oric growth and fo­cus­ing in­stead on Douyin, its video app for Chi­nese users.

TikTok’s own­ers will be keen to avoid the fate ex­pe­ri­enced by the gay dat­ing app, Grindr, which was sold to Chi­nese busi­ness Bei­jing Kun­lun in 2016. The US govern­ment’s Com­mit­tee on For­eign In­vest­ment in the United States (CFIUS), a pow­er­ful body which re­views for­eign takeovers for se­cu­rity risks, made the rare step of re­port­edly or­der­ing the ac­qui­si­tion to be un­done af­ter ex­press­ing na­tional se­cu­rity concerns over the sale.

Grindr’s Chi­nese owner fi­nally sold the app in March to an Amer­i­can busi­ness, end­ing four years of geopo­lit­i­cal wran­gling. TikTok is now fac­ing a CFIUS re­view of its own over its $1bn (£791m) pur­chase of Mu­si­cal.ly in 2017 which gave it thou­sands of users in the West and was a key tool for TikTok’s growth. A sim­i­lar out­come to Grindr’s ac­qui­si­tion for TikTok could gut its US op­er­a­tions.

If it is strong-armed into a sale, the most likely can­di­dates to pur­chase it, ac­cord­ing to in­dus­try sources, are ex­ist­ing in­vestors in ByteDance.

SoftBank, the Ja­panese con­glom­er­ate, in­vested in ByteDance from its Vi­sion Fund in 2018 and has shown a high ap­petite for tech­nol­ogy busi­nesses. But SoftBank’s bets on un­prof­itable com­pa­nies, such as Uber and WeWork, may have soured its ex­ec­u­tives’ ap­petite to take on a risky project like run­ning of TikTok.

Al­ter­na­tive can­di­dates could in­clude Amer­i­can in­vestors in ByteDance such as Se­quoia Cap­i­tal, Susque­hanna In­ter­na­tional Group and Tiger Global. Hand­ing the app over to a com­pany head­quar­tered in the US is likely to go a long way to eas­ing concerns by US politi­cians over who con­trols TikTok’s valu­able data on the view­ing habits of Amer­i­can teenagers.

The new owner could then set up a US head­quar­ters un­der the di­rec­tion of former Dis­ney ex­ec­u­tive, Kevin Mayer, who ByteDance poached ear­lier this year to be­come the new chief ex­ec­u­tive of TikTok.

An­other plan for ByteDance could be spin­ning off TikTok into a new busi­ness head­quar­tered in the US which it owns part of the shares in, but is run by an Amer­i­can com­pany.

“If Bytedance does that, then they’ve ac­cepted that they can­not

‘Geopol­i­tics used to be de­fined by oil and nat­u­ral gas. Now it’s de­fined by emerg­ing tech­nolo­gies’

op­er­ate glob­ally the way they want to. It’s a huge ad­mis­sion of fail­ure,” Prakash says.

ByteDance ex­ec­u­tives, how­ever, have been in­sis­tent that a sale of TikTok isn’t an op­tion. “We have had no dis­cus­sions with po­ten­tial buy­ers of TikTok, nor do we have any in­ten­tion to,” TikTok’s then-head, Alex Zhu, told em­ploy­ees in De­cem­ber.

Spin­ning off TikTok into an en­tirely new busi­ness is not the only op­tion, though. There are other ways ByteDance could split out TikTok but re­tain con­trol of the app.

Be­fore US concerns es­ca­lated, spec­u­la­tion had al­ready been swirling that it was plan­ning to set up a sep­a­rate in­ter­na­tional head­quar­ters for TikTok to help it ap­peal to Western users. The ques­tion had been which country would house this HQ.

The UK was seen as a front-run­ner. Up un­til rel­a­tively re­cently, it was re­garded by China as a spring­board to a launch into Western markets, and the Chi­nese had been courted by pre­vi­ous gov­ern­ments in­clud­ing, no­tably, David Cameron and Ge­orge

Os­borne with their “Belt and Road” ini­tia­tive. Bri­tain had been, Ge­orge Magnus, re­search as­so­ciate at the Univer­sity of Ox­ford’s China Cen­tre, says, “the pre­ferred host for Chi­nese di­rect in­vest­ment abroad in Europe”.

“I think the Chi­nese liked be­ing in the UK. They thought they were wel­come here and they also be­lieved there were lots of ad­van­tages they could have ex­ploited.”

And so, when it came to con­sid­er­ing an in­ter­na­tional head­quar­ters for TikTok, Lon­don was quite clearly among ByteDance’s top choices along­side the US, Ire­land and Singapore. Things had al­ready pro­gressed. Last week­end, The Sun­day

Tele­graph re­ported that ByteDance had been on the hunt for a new 30,000 sq ft property, and had held talks with the Govern­ment over a planned in­vest­ment here.

Yet, much has changed in the past few weeks. New takeover laws have been tabled to block too much Chi­nese in­vest­ment, Bri­tain has bent to Trump’s wishes for a Huawei ban – and now, ques­tions over the UK’s neu­tral­ity are be­ing asked.

Which­ever route TikTok chooses is likely to be con­tro­ver­sial. ByteDance’s app has be­come a smash hit, and the US and Chi­nese gov­ern­ments have shown no signs of re­duc­ing pres­sure over the on­go­ing trade war.

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