The US has told TikTok’s owners in China to sell their shares or risk a ban of the popular video-sharing app, people familiar with the matter said, a major escalation in the long-running standoff over privacy concerns around Chinese control of its data and algorithm, according to Bloomberg.
The Treasury Department’s Committee on Foreign Investment in the US made the demand recently to TikTok’s owner, ByteDance Ltd., the people said, indicating that the Biden administration has given up on a security review that was intended to blunt potential Chinese influence regarding the app. They asked not to be identified discussing private deliberations.
Under the demand, Cfius would start a process to approve a buyer for TikTok’s US assets, according to one of the people. The objective would be to find a purchaser that could reconstruct the algorithm for the US operations, walling off access by the Chinese to US users and their data, the person said. There are a number of potential buyers who might be interested, including content companies, tech players and private equity, said the person.
At the same time, ByteDance is determining whether to sue, the person said. A forced sale of TikTok’s operations under former President Donald Trump was stayed while the Biden administration reviewed the national security risks posed by the social media app.
TikTok’s leadership has been discussing the possibility of separating from ByteDance Ltd., its Chinese parent, to help address concerns about national security risks, Bloomberg News reported. One person said TikTok’s owners could retain some form of ownership but through a passive structure.
“If protecting national security is the objective, divestment doesn’t solve the problem: a change in ownership would not impose any new restrictions on data flows or access,” TikTok spokeswoman Maureen Shanahan said in a statement. “The best way to address concerns about national security is with the transparent, US-based protection of US user data and systems, with robust third-party monitoring, vetting, and verification, which we are already implementing.”
Under the Cfius security review, the company agreed last year to implement a number of changes in a plan it calls Project Texas. The proposal includes bringing in American technology giant Oracle Corp. to host US user data and review its software, and appointing a three-person government-approved oversight board. Many of the moves are already under way.
The Cfius divestiture demand signals that US regulators don’t think Project Texas goes far enough to address security concerns. The administration was unconvinced by TikTok’s proposal to add layers of oversight and separation from ByteDance, according to another person familiar with the matter.
Early on, the Biden administration asked a federal judge to pause a lawsuit over that ban while it reviewed its options.
Still unclear is how Beijing would respond to a forced sale by TikTok’s owner, the world’s largest startup at a valuation of $220 billion and considered one of China’s highest profile companies abroad. The government in the past has indicated it would scrutinize such a deal carefully, for fear of data or algorithms ending up in foreign hands.
The move will only add to strain in the US relationship with China at a time when the two countries are already clashing over issues ranging from the fate of Taiwan to export controls of microchips to China’s strengthening partnership with Russia.
The US National Security Council and the Treasury Department declined to comment on Wednesday night.
US officials have been airing longstanding national security concerns about TikTok. FBI Director Christopher Wray told lawmakers in November that China’s government could use the app to control millions of users’ data or software, and its recommendation algorithm — which determines which videos users will see next — “could be used for influence operations if they so choose.”
TikTok Chief Executive Officer Shou Chew has been asked to testify before a House committee next week about the app’s data privacy and security practices, and the company’s relationship with the Chinese Communist Party.