The TikTok law kicks off a new showdown between Beijing and Washington. What’s coming next?

 TikTok is gearing up for a legal fight against a U.S. law that would force the social media platform to break ties with its China-based parent company, a move almost certainly backed by Chinese authorities as the bitter U.S.-China rivalry threatens the future of a wildly popular way for young people in America to connect online.

Beijing has signaled TikTok should fight what it has called a “robbers” act by U.S. lawmakers “to snatch from others all the good things that they have.” Should a legal challenge fail, observers say Chinese authorities are unlikely to allow a sale, a move that could be seen as surrendering to Washington.

Beijing may not want the U.S. action against the popular short-form video platform to set a “bad precedent,” said Alex Capri, senior lecturer at the National University of Singapore and research fellow at Hinrich Foundation. “If Beijing capitulates to the U.S., where does it end?”

In its first official response to the new law, parent company ByteDance delivered a statement Thursday on Toutiao — a Chinese news app it owns — stating it “doesn’t have any plan to sell TikTok.” The Beijing-based firm was responding to media reports that said it was exploring scenarios for selling TikTok’s U.S. business.

The legislation that U.S. President Joe Biden signed this week could allow Washington to widen its scope to target other China-related apps, such as the popular e-commerce platform Temu, and embolden U.S. allies to follow suit, said Hu Xijin, a former editor-in-chief for the party-run newspaper Global Times.

With 170 million American users, TikTok should “have more guts to fight to the very end and refuse to surrender,” Hu, now a political commentator, said Wednesday on Chinese social media.

TikTok vowed to challenge the new U.S. law, which requires ByteDance to divest its stakes within a year to avoid a ban. The company has characterized the law as an infringement on the free speech rights of its users, most of whom use the app for entertainment.

“We believe the facts and the law are clearly on our side, and we will ultimately prevail,” the company wrote on the social platform X.

The fight over TikTok has increased tensions between the U.S. and China, with both vowing to protect their economic and national security interests. U.S. lawmakers are concerned the Chinese ownership of the app could allow Beijing to exert unwanted influence in the U.S., especially on young minds. The law has followed a string of successes by Washington in curbing the influence of Chinese companies through bans, export controls and forced divestitures, drawing protests from Beijing that the U.S. is bent on suppressing China’s rise through economic coercion.

The U.S. has forced other Chinese companies to divest before, including in 2020, when Beijing Kunlun, a Chinese mobile video game company, agreed to sell the gay dating app Grindr after receiving a federal order. But TikTok, created by a Chinese company only for the overseas market and evidence of the nation’s tech powers on the global stage, is a high-profile case that Beijing does not want to lose.

National dignity is at stake and could “take precedence over the financial interests of ByteDance investors,” including global investors who own 60% of the company, said Gabriel Wildau, managing director of the New York-headquartered consulting and advisory firm Teneo.

A legal challenge from the company is expected to lean on First Amendment concerns and could drag on for years. Beijing is betting on a legal win, analysts say.

What to do if TikTok doesn’t prevail is likely still being debated with the Chinese leadership, said Dominic Chiu, an analyst with Eurasia Group. President Xi Jinping, who will have to sign off on whether to permit or prohibit the sale, probably has not made the final decision, Chiu said.

Luckily for Xi, there is no urgency for Beijing to decide, said Sun Yun, director of the China program at the Washington-based Stimson Center. “A lot of things could change,” she said.

If lawmakers get their wish and a sale does occur, it’s likely to be a challenging and messy process for TikTok, which would have to disentangle its U.S. operations from everything else.

For one, the price tag for TikTok’s U.S. business — which is unknown — is expected to be high enough to severely limit the pool of investors and companies who’d be able to afford it. Some investors — including former Treasury Secretary Steve Mnuchin — have already positioned themselves as potential buyers of a U.S. version of TikTok. ByteDance, which is privately held, is valued at $220 billion, according to market tracker Pitchbook.

And there’s uncertainty about what would happen with the TikTok algorithm, the secret sauce that feeds users short videos based on their interests and has contributed to the platform’s status as a cultural juggernaut.

ByteDance would be barred from controlling the algorithm of a U.S. spinoff of TikTok. Many experts believe Chinese authorities would block any sale of the technology that populates people’s TikTok feeds under export regulations revised in 2020, when then-President Donald Trump unsuccessfully tried to ban TikTok through an executive order that was blocked in federal courts.

Some, including Mnuchin, have said TikTok would need to be rebuilt in the U.S. using new technology. But it’s unclear what that might look like, or how well it can reproduce the type of video recommendations users have grown accustomed to seeing.

Robin Burke, a professor of information science at the University of Colorado Boulder, says some aspects of the algorithm might be replicated by industry insiders. But he also noted there are areas where TikTok appears ahead of its competitors and duplication might prove challenging.

“TikTok has all the experience, they have all the data,” Burke said. “I think it’s unlikely that a U.S. business — if they don’t inherit the technology from the parent company — would be able to build something equivalent. Certainly not right away.”

TikTok owner ByteDance would prefer to shut down its loss-making app rather than sell it if the Chinese company exhausts all legal options to fight legislation to ban the platform from app stores in the U.S., four sources said.
The algorithms TikTok relies on for its operations are deemed core to ByteDance's overall operations, which would make a sale of the app with algorithms highly unlikely, said the sources close to the parent.
TikTok accounts for a small share of ByteDance's total revenues and daily active users, so the parent would rather have the app shut down in the U.S. in a worst case scenario than sell it to a potential American buyer, they said.
A shutdown would have limited impact on ByteDance's business while the company would not have to give up its core algorithm, said the sources, who declined to be named as they were not authorised to speak to the media.
ByteDance declined to comment.
It said late on Thursday in a statement posted on Toutiao, a media platform it owns, that it had no plan to sell TikTok, in response to an article by The Information saying ByteDance is exploring scenarios for selling TikTok's U.S. business without the algorithm that recommends videos to TikTok users.
In response to a Reuters request for comment, a TikTok spokesperson referred to ByteDance's statement posted on Toutiao.
TikTok's CEO Shou Zi Chew said on Wednesday the social media company expects to win a legal challenge to block legislation signed into law by President Joe Biden that he said would ban its popular short video app used by 170 million Americans.
The bill, passed overwhelmingly by the U.S. Senate on Tuesday, is driven by widespread worries among U.S. lawmakers that China could access Americans' data or use the app for surveillance.
Biden's signing sets a Jan. 19 deadline for a sale - one day before his term is poised to expire - but he could extend the deadline by three months if he determines privately owned ByteDance is making progress.
ByteDance does not publicly disclose its financial performance or the financial details of any of its units. The company continues to make most of its money in China, mainly from its other apps such as Douyin, the Chinese equivalent of TikTok, separate sources have said.
The U.S. accounted for about 25% of TikTok's overall revenues last year, said a separate source with direct knowledge.
Reuters interviewed more than half a dozen investment bankers who said it was tough to value how much TikTok is worth compared with like-for-like competitors Meta Platforms' (META.O), opens new tab Facebook and Snap (SNAP.N), opens new tab, as TikTok's financials are not widely available nor easy to access.
ByteDance's 2023 revenues rose to nearly $120 billion in 2023 from $80 billion in 2022, said two of the four sources. TikTok's daily active users in the U.S. also make up just about 5% of ByteDance's DAUs worldwide, said one of the sources.


TikTok shares the same core algorithms with ByteDance domestic apps like short video platform Douyin, three of the sources said. Its algorithms are considered better than ByteDance rivals such as Tencent and Xiaohongshu, said one of them.
It would be impossible to divest TikTok with its algorithms as their intellectual property licence is registered under ByteDance in China and thus difficult to disentangle from the parent company, said the sources.
Moreover, separating the algorithms from TikTok's U.S. assets would be an extremely complicated procedure and ByteDance is unlikely to consider that option, the sources added.
ByteDance also would not agree to sell one of its most valuable assets – its "secret source" - to rivals, said the four sources, referring to the TikTok algorithm.
In 2020, the Trump administration sought to ban TikTok and Chinese-owned WeChat but was blocked by the courts. The short-form video app has since faced partial and attempted bans in the U.S. and other countries.
China indicated it would be likely to reject a forced divestment of the TikTok app during a U.S. congressional hearing in March last year.
"China will firmly oppose it (the forced sale of TikTok)," said a spokeswoman for the Ministry of Commerce at a news conference in Beijing in late March 2023.
"The sale or divestiture of TikTok involves technology export and must go through administrative licensing procedures in accordance with Chinese laws and regulations."
China in 2020 unveiled the Export Control Law and the final text extended the definition of "controlled items" from prior drafts. According to state media, the amendment ensures that the exports of algorithms, source codes and similar data are subject to an approval process.
Excluding algorithms, TikTok's main assets include user data and product operations and management, said two of the people.
Former U.S. Treasury Secretary Steven Mnuchin has expressed interest in putting together an investor group to try to buy TikTok. ByteDance may struggle to attract any buyers for TikTok's U.S. assets excluding algorithms, the sources said.
ByteDance, backed by Sequoia Capital, Susquehanna International Group, KKR & Co (KKR.N), opens new tab, and General Atlantic among others, was valued at $268 billion in December when it offered to buy back around $5 billion worth of shares from investors, Reuters reported at the time.

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