TikTok’s Chinese owner ByteDance shelved a deal to sell the video-sharing app’s US operations to a group led by Oracle following Donald Trump’s exit from the White House, according to a source who has been briefed on the situation.
“The deal was mainly designed to entertain demands from the Trump administration,” said the source, who declined to be named. “But Trump is gone, and the raison d’être of the deal is gone with him.”
The source added that Larry Ellison, one of Oracle’s founders, was a Trump supporter and ByteDance believed this would have been a valuable relationship if the former president had won re-election, but the social media giant lost interest after Biden won the election.
The Wall Street Journal reported last week that the plan had been shelved “indefinitely” while President Joe Biden undertakes a broad review of his predecessor’s efforts to address potential security risks from Chinese tech companies.
ByteDance is now searching for a new structure for its US operations, the source said, confirming an earlier report by the Post that TikTok was continuing talks with the government despite the change in administration.
A regulatory source based in Beijing said the Chinese government has laid down certain guidelines for the deal.
“The Chinese government has no intention of intervening in commercial details, such as whether the price should be a bit higher or a bit lower, but there are principles,” said the regulatory source, who declined to be named because he is not authorised to speak to the media.
The first principle – as the Chinese government made clear through an updated export control law last year – is that ByteDance cannot sell its core algorithms to its US entity, a condition previously described as “the car can be sold, but not the engine” .
China’s Ministry of Commerce updated its export control regulations at the end of August, saying exports of algorithms will be subject to regulatory approval. ByteDance said the following month that it had filed a technology export application to the Beijing Bureau of Commerce without specifying what the technologies in question were.
The second principle is political. “ByteDance can’t be seen as kneeling before the US government,” the source said. “It can’t set a bad example for other Chinese companies.”
ByteDance has yet to respond to requests for comment.
In late September, the Chinese company said it had reached an agreement in principle with Oracle and Walmart.
Under the deal, ByteDance would have incorporated a US-based entity called TikTok Global, selling a 20 per cent equity stake and keeping the remaining 80 per cent.
The deal would not have involved any transfer of algorithms or technology, but Oracle would have had the right to conduct a security review of source code owned by TikTok, according to a statement from ByteDance that it issued to “dispel untrue rumours”.
ByteDance has been fighting a legal and public relations battle for TikTok’s future in the US since Trump threatened to ban it in August, citing security concerns. The White House issued an executive order calling for the app’s US operations to be sold to a US company or spun off – an order TikTok challenged in court.
The Biden administration is now reviewing Trump’s efforts to ban the app in the US. Last week, the US Department of Justice filed requests in two federal courts asking them to delay litigation concerning TikTok and another Chinese app, WeChat.
TikTok has already been banned in India, along with 58 other Chinese apps, on national security grounds following a deadly clash between Chinese and Indian troops along the disputed border.
Bloomberg reported on Saturday (Feb 13) that ByteDance is exploring a deal to sell TikTok’s Indian businesses to Glance , the owner of the rival short video app Roposo.
Despite Trump’s threats, TikTok was the most downloaded app on the iOS and Google Play stores in the US last year.
In a statement issued in August, ByteDance said it had “taken extraordinary measures to protect the privacy and security of TikTok’s US user data” and was planning to create 10,000 jobs in the US.
This article was first published in South China Morning Post.