New export catalogue complicates deal for app
US President Donald Trump may be now the person most eager to see a deal for TikTok completed by his self-imposed deadline, as the viral video-sharing app’s current owner and potential bidders weigh the stakes of the transaction, a Chinese analyst who is following the process said on Thursday.
Media reports have said that more twists and turns are happening as the September 20 deadline draws near.
The Wall Street Journal on Wednesday cited sources as saying that TikTok’s Chinese parent, ByteDance, is discussing with the US government possible arrangements that would allow the app to avoid a full sale of its US operations. Options include restructuring to involve a US company to look after TikTok’s user data, addressing concerns raised by Trump.
September 20 is the date that Trump initially imposed for TikTok to agree to a sale of its US operations or be shut down. Trump also wanted a large commission fee paid to US coffers. In China, the deal has been called daylight robbery by the US government of Chinese corporate property.
Reported bidders include Microsoft, which has joined with Walmart Inc, and Oracle Corp. TikTok’s major investors include Sequoia Capital, General Atlantic and Coatue Management.
Fu Liang, a Beijing-based telecom industry expert, said the deal, which has come to the forefront of trade friction between China and the US, has a 90 percent chance of failing by the September 20 deadline.
“Trump’s radical wish to make this deal a political point in his election campaign and the fact that the deal could not be completed at Trump’s designated time has turned Trump into the most eager person, above other parties involved,” for the deal to be completed, Fu told the Global Times on Thursday.
The Chinese government’s newly updated catalogue of export control items has complicated the app’s prospects. While the sale of TikTok’s core algorithm is possible, it needs approval by Chinese authorities, and they won’t follow Trump’s tight deadline in what is naturally a lengthy approval process.
TikTok’s assets in the US include a management and marketing operation managing businesses outside of China, a Chinese operation that provides technical support to the app, and most importantly, a vast user base of 100 million people.
Analysts said one option would be a bundled sale of country markets – selling the operations in the US, Canada, Australia and New Zealand together. India, which has banned TikTok, has fallen from bidders’ favor. The other possibility could be that ByteDance keeps a minority stake in exchange for continuing to provide algorithms.
Wang Chao, founder of the Wenyuan Institute for Politics and Economics, a Beijing-based think tank, told the Global Times on Thursday that reported negotiations between ByteDance and US officials showed the latter had softened a little bit on the TikTok issue by considering whether the Chinese firm could retain a stake.
It seems that ByteDance has won a chance to tilt the deal to its advantage following the recently announced technology export catalogue of the Chinese government, which has helped ByteDance gain more room in bargaining with the US.
“But the space is still quite limited,” said Wang, adding that the result of TikTok’s US deal is closely related to political trends in the US, depending on what cards the Trump campaign team will play.
However, without the special algorithm, Fu said, some potential bidders are seeking a further cut from the reported $50 billion price, which may in turn dissuade ByteDance from selling the app.
“After all, ByteDance has to consider whether a sale at a price below its high valuation due to its massive user base is worth the possible political and public opinion backlash it will face at home,” Fu said.
Zhang Yiming, owner of ByteDance, faces the possibility of retaining a partial stake in TikTok in the US, given the political situation in the US and amid the geopolitical tensions between the two countries, Fu added.
Shortly after the news of TikTok’s sale first reached China, online posts began to circulate on Chinese online forums saying Zhang Yiming “bends his knees too fast to US pressure.”
Analysts said all things considered, letting the deal die and seeing what happens remains an option for ByteDance. In this scenario, TikTok will lose its US market, a big blow to its internationalization strategy, but its operations in other countries will continue with a potential new headquarters in the UK.
It remains to be seen if other countries such as Canada and Australia will follow the US decree to ban the app. TikTok filed a lawsuit in late August challenging Trump’s executive order.
The Wall Street Journal reported that ByteDance has shown the Trump administration that shutting down the app carries risks as many TikTok users skew politically conservative.
For Trump, an unfinished TikTok deal that occasionally becomes controversial but fails to make political points is a hot potato, Fu said.
Photo taken on Aug. 21, 2020 shows the video-sharing social networking company TikTok’s Los Angeles Office in Culver City, Los Angeles County, the United States. TikTok confirmed Saturday that it will file a lawsuit against the Trump administration over an executive order banning any U.S. transactions with its parent company ByteDance. (Xinhua)
