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
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.