• Sat. Nov 28th, 2020

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Technology

TikTok Parent ByteDance Seeks Chinese Approval For U.S. Deal With Oracle, Walmart

Topline

TikTok’s parent ByteDance has applied for an export license in line with the Chinese government’s new regulation on the sale of AI technology, the company disclosed in a blog post, as it seeks Beijing’s approval for its proposed deal to sell a 20% stake in the video-sharing platform to Oracle and Walmart.

Key Facts

In a post made on the Chinese blogging platform Toutiao, ByteDance wrote that it has submitted a license application to the Beijing Municipal Bureau of Commerce for the export of “prohibited and restricted technologies,” but did not offer any details on the exact technology in question.

Last month, the Chinese government had updated its export controls list adding AI technologies—including ‘‘personalized content recommendation” tools like the one used by TikTok—in a move that necessitates its approval for any deal between TikTok and a U.S. company.

A Chinese commerce ministry spokesperson said on Thursday that Beijing’s commerce bureau had received Bytedance’s application and it would handle it according to regulations, the Wall Street Journal reported.

China’s state-controlled media has been calling on Beijing to reject TikTok’s U.S. deal, with an editorial on China Daily referring to the deal as a “dirty and underhanded trick,” adding “what the United States has done to TikTok is almost the same as a gangster forcing an unreasonable and unfair business deal on a legitimate company.”

There has been some ambiguity on the issue of TikTok’s algorithms and technologies, with ByteDance contradicting media reports by stating that it wasn’t handing over any algorithms and technologies, adding that Oracle will only have the limited access to view the source code for TikTok U.S.

ByteDance had also stated that it will retain 80% control of TikTok after the deal, a claim that has been refuted both by Oracle and President Donald Trump, who has threatened to scuttle any deal if Oracle doesn’t have “total control.”

Tangent

According to a Reuters report from Wednesday, ByteDance had told Treasury Secretary Steve Mnuchin that it would agree to terms put forth by the Committee on Foreign Investment in the United States (CFIUS), which had called on ByteDance to divest its U.S. operation labeling it as a potential security risk. The Chinese firm, however, broke rank and announced a deal in which TikTok would remain a ByteDance subsidiary, contradicting Oracle and Walmart, which said the majority owners would be Americans. Trump announced the deal and offered his “blessing” for the same on Saturday after he got assurances from Oracle and Walmart that they would create 25,00 new jobs at TikTok and launch an educational initiative for children. But with no actual contract or a concrete plan to bring China on board, Walmart and Oracle reportedly scrambled to provide a statement outlining the key terms of the deal as they understood it. ByteDance would then make a blog post on Monday to “debunk false rumors” about the deal, that contradicted Oracle and Walmart’s statement regarding American control of TikTok.

Crucial Quote

In a sharply worded editorial, the state-controlled publication China Daily wrote, “China has no reason to give the green light to such a deal, which is dirty and unfair and based on bullying and extortion. If the US gets its way, it will continue to do the same with other foreign companies.” It went on to add that if such a deal is approved it would “mean the doom of the Chinese company ByteDance.”

Key Background

On Saturday, TikTok announced that Oracle and Walmart agreed to acquire a 20% stake in TikTok’s global business as part of a pre-IPO financing round, moments after President Donald Trump told the press that he had given his “blessing” to the deal. As part of this deal, Oracle agreed to acquire 12.5% of the video-sharing platform, while Walmart agreed to hold a 7.5% stake, but this arrangement now looks to be at risk. In a statement shared with Forbes, Oracle executive vice president Ken Glueck echoed Trump’s position stating that “Americans will be the majority and ByteDance will have no ownership in TikTok Global,” without offering any additional details. However, despite Trump’s insistence, that Oracle will control TikTok, the U.S. company doesn’t appear to have a seat on TikTok Global’s new board as per ByteDance’s statement from Monday. According to the Beijing-based firm, TikTok’s new board will include ByteDance’s founder and current directors, along with Walmart CEO Doug McMillon. Glueck’s belief that Americans will control TikTok Global may come from the fact that U.S. citizens (McMillion and three of ByteDance’s existing directors) make up the majority of the board. while ByteDance’s U.S. investors like Sequoia, General Atlantic and Tiger Management, along with Walmart and Oracle may end up holding a majority stake in the newly-created TikTok Global, according to CNBC.

What To Watch For

TikTok has asked the District of Columbia federal court to approve a preliminary injunction against the Trump administration in response to the Commerce Department threat to remove TikTok’s app from both the Google and Apple mobile app stores by Sunday for U.S. users and suspend further software updates to the app. The app was originally set to be removed from the app stores on Sunday, but Commerce Secretary Wilbur Ross agreed to delay the restrictions by a week.

Further Reading

TikTok Owner Puts Deal With Oracle, Walmart in Beijing’s Hands (Wall Street Journal)

Trump, Oracle Push Back Against ByteDance’s Claim Of 80% Ownership Of TikTok Global (Forbes)

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