Donald Trump’s extension of time to decide TikTok’s fate in the US is in effect until early April, leaving the negotiating parties with little time to agree on a deal that would create an ownership structure for TikTok’s US business that would be acceptable to both the US government and the Chinese side, which is reluctant to hand over control entirely to the US.
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This was reported by Nikkei Asian Review, citing sources familiar with the negotiations. American law prohibits representatives of hostile states from owning more than 20% of the shares of platforms with the level of influence of TikTok. The capital structure of the parent company ByteDance implies that 20% of the shares are held by management, another 20% by employees, and the remaining 60% is distributed among institutional investors, most of whom are based outside of China.
In any case, with such an ownership structure, the US authorities have the formal right to demand that TikTok change the owners of the part of the business that concerns operations in the US jurisdiction. TikTok and ByteDance reportedly continue to resist the idea of a complete sale of the US business and, during negotiations, offer US investors an increase in the stake, but not to deprive themselves of control over TikTok’s US assets completely.
Moreover, since 2020, Chinese law requires local companies to obtain approval from the Chinese government before selling critical technologies to foreign investors, and TikTok’s recommendation algorithm is one of them. For this reason, ByteDance simply won’t be able to make a deal with American investors without the approval of the Chinese government. Ideally, ByteDance would like to keep this recommendation algorithm for itself, rather than hand it over to the Americans.
Donald Trump has the final say in assessing the extent of Chinese control over TikTok, and if the necessary criteria for “landing” in the US are not met, the social network will again be at risk of being banned from operating in the US market. Trump will not be able to extend the delay in the law’s entry into force indefinitely, but he can force the US Department of Justice to take a pause in implementing the relevant measures.
The purchase of TikTok’s American business by a US sovereign wealth fund is a fairly new idea that could become an alternative to creating a joint venture with one or more American companies. China’s political leadership has made it clear that it is not opposed to creating a joint venture with a 50% American share in the capital, but the final say in studying the proposals rests with business representatives, not the government. The main thing is that Chinese law is observed, as the Chinese Foreign Ministry emphasized.