TikTok wants to stay out of China but the government is getting involved

BEIJING – China says it will “strongly oppose” the forced sale of TikTok, clarifying the government’s involvement with the social media giant, which is trying hard to distance itself from Beijing authorities.

TikTok is subject to a sale or spinoff from Beijing-based Bit Dance, the Ministry of Commerce said on Thursday. Chinese Law on Technology Exports – Requires licenses to export certain technologies based on national security concerns. ByteDance also owns Douyin, the Chinese version of TikTok popular in the country.

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

Xu spoke at the ministry’s weekly press conference, hours before TikTok CEO Show Ji Xiu testified before a US delegation.

Lawmakers questioned Chew for more than five hours, seeking clarification on TikTok’s ability to operate independently of Chinese influences on its parents.

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

The questions don’t seem to escape U.S. lawmakers.

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

Evidence that ByteDance has legal control over TikTok raises doubts among US lawmakers about how well the app can prove its independence through reform, Kelly said.

TikTok has a “Texas plan” to store US user data on US soil – in an attempt to demonstrate the company’s claims that Chinese authorities can’t access it.

“I don’t think a strike is a ban or a complete exclusion [of TikTok] needed. But I think you have to separate that legal control,” Kelly said, noting that could be done through a trust structure.

But the Commerce Ministry’s claim of control over the sale or spinoff of TikTok means Beijing wants to get involved.

“The Chinese government’s public announcement to block the sale of TikTok in the United States has little to do with protecting Chinese methods and technology and has little to do with giving Washington a taste of its own medicine,” said Vice President Daniel Russell. International Security and Diplomacy, Asia Society Policy Institute said in a statement.

“Beijing, I asked [U.S. Commerce] “Secretary Raymond’s lament that banning TikTok will anger voters under 35 now gives Congress and the administration a double whammy to ‘make my day,'” Russell said.

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

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

Employees of its China-based parent company, Byte Dance, may still have access to some US data, but Chew also told US lawmakers that new data flows will stop once the company completes its Project Texas project.

Official Chinese comments have previously insisted that China-based companies must comply with local laws and regulations when operating overseas.

It was not immediately clear how China’s export control law, enacted in December 2020, would apply to TikTok.

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

The US and China increasingly use national security as a reason to control technology.

“To be fair, there are actually very real national security risks involved [TikTok] – That’s one of the reasons to ban the use from government phones and military phones,” said Glenn Gerstel, senior adviser at the Center for Strategic and International Studies on CNBC’s “Street Science Asia” Friday. The National Security Agency from 2015 to 2020.

“For the general public, I don’t see the strategic value of China understanding what a young man’s dance moves are in Minneapolis. So I don’t understand the general public’s ban,” he said.

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

It is unclear whether the US will force ByteDance to sell TikTok or ban the app from being used in the country. The most popular app has already been banned from central government devices.

“We see a 3-6 month time frame for ByteDance and TikTok to sell to a US tech player, much less a spin-off and more complex to pull off,” said Dan Ives, analyst at Wedbush Securities. Note.

“If Byte Dance fights against this forced sale, TikTok will be banned in the US by late 2023.”

— CNBC’s Lauren Feiner contributed to this report.