TikTok deal talks thrown off track as Chinese restrictions create new hurdles

Plans to quickly complete a deal between the parent company of TikTok and suitors for the app’s US operations thrown off track.

The TikTok app is displayed on an Apple iPhone. Picture: Drew Angerer/Getty Images

Plans to quickly complete a deal between the Chinese parent company of TikTok and suitors for the app’s US operations have been thrown off track as the parties huddled over the weekend to weigh new Chinese restrictions that appear designed to affect a potential sale, according to people familiar with the discussions.

China late on Friday issued new restrictions on the export of artificial-intelligence technology that forced ByteDance, TikTok’s parent, to slow down talks with companies including Microsoft, Walmart and Oracle for a portion of the social-media app, according to people familiar with the matter.

ByteDance, which had received the broad outlines of bids on Friday for the TikTok assets, had been expected to enter into exclusive discussions with one group of suitors over the weekend, the people said. The Trump administration in early August set a mid-September deadline for ByteDance to sell its US operation.

Microsoft and Walmart have been working together, and Oracle also has been joined by ByteDance investors General Atlantic, Sequoia Capital and Coatue Management. “We are studying the new regulations that were released Friday,” ByteDance General Counsel Erich Andersen said. “As with any cross-border transaction, we will follow the applicable laws, which in this case include those of the US and China.”

The talks are far from being scuttled, but the latest developments do make clear that China plans to keep as close a watch on any potential deal as the Trump administration. President Trump and other US officials have raised the spectre of privacy and national-security concerns over TikTok’s data collection in demanding that its US operations be sold or that it face a ban. TikTok has said it hasn’t and won’t share data on US users with the Chinese government.

ByteDance has sued the US government in federal court, saying that it protects user data and challenging an executive order from Mr Trump that would effectively ban the video-sharing app if a buyer for its US operations can’t be found.

The new Chinese restrictions highlight the extent to which TikTok, a breakout social-media hit — especially with younger US users — has been thrust into a geopolitical contest between the US and China over the future of global technology. China’s move to give the government a say in the outcome is an attempt to level the playing field with the US and could affect other Chinese companies, some of the people said.

“We’re seeing geopolitical tension between the US and China, and we are in the middle of that,” TikTok interim head Vanessa Pappas said in an interview with the Today show in mid-August, before China announced its new restrictions.

Those involved in discussions on a potential sale said they don’t yet have a complete understanding of how China will enforce the strictures, which were unveiled by the country’s ministries in charge of commerce and science and technology.

They cover such computing and data-processing technologies as text analysis, content recommendation, speech modelling and voice-recognition. Technologies on the list can’t be exported without a license from local commerce authorities.

On Saturday, China’s official Xinhua News Agency quoted a government trade adviser as saying that ByteDance should study the new export list and “seriously and cautiously” consider whether or not it should halt its sales negotiations. The adviser, University of International Business and Economics professor Cui Fan, told Xinhua that ByteDance owes its success internationally to China’s domestic technology prowess and providing updated algorithms to firms overseas is a form of technology export. That means that no matter who is the new operator of ByteDance’s international business, there likely will be some cross-border technology transfer, he said.

ByteDance said in a statement on Sunday that it was aware of the new restrictions and would “strictly comply with” China’s regulations on tech exports.

Wall Street Journal