China’s New Law May Seriously Cripple a TikTok U.S. Sale
China’s new law on AI tech may have sent TikTok’s prospective buyers back to the drawing board. Reuters reports that negotiations to acquire TikTok’s U.S. operations have hit a critical snag as bidders scramble to figure out ways to comply with China’s updated export rules.
Earlier this week, Beijing released an amendment for its tech export laws to cover “recommendation of personalized information services based on data” — that is essentially the cornerstone of TikTok’s viral success. Any foreign business which seeks to acquire products with such AI-based recommendation engines must now first secure the local government’s stamp of approval, the new rules state.
In a statement at the time, Bytedance general counsel Erich Andersen said the company is “studying the new regulations” and it will “follow the applicable laws.” “As with any cross-border transaction, we will follow the applicable laws, which in this case include those of the U.S. and China,” he added.
Reuters says prospective buyers are primarily exploring a total four routes to restructure the deal and none of them seem promising. The most obvious and convenient option is to simply acquire TikTok without the algorithm but that, as it sounds like, would be a risk companies such as Microsoft or Oracle, two of the reported front-runners, may not be willing to take. TikTok’s algorithm is its key ingredient and leaving it out of the deal could render the acquisition practically worthless for interested buyers.
On the opposite end of this spectrum is the scenario where bidders consider seeking approval from China. But as political tensions between the U.S. and China continue to escalate, that’s unlikely to happen — especially given that TikTok needs to reach a resolution before the proposed November 12th deadline to avoid a ban.
We’ve reached out to Bytedance, Microsoft, and Oracle for a comment and we’ll update the story when we hear back.
Another option is to work out a transition period of up to a year with the Committee on Foreign Investment in the United States (CFIUS). Reuters didn’t comment on how this plan could potentially unfold but it’s possible the time frame may enable the new owner to replicate the algorithm and eventually let go of Bytedance’s, TikTok’s parent company, engine.
Lastly, Bytedance could be asked to license the algorithm to whichever American giant ends up acquiring TikTok’s U.S. business. However, again, this will step over regulatory lines especially the U.S. may not be comfortable with. The Trump administration has made it clear TikTok will have to give up all of its Chinese ties in order to continue functioning in the U.S.