Last week Chinese regulators cast doubt over ByteDance’s planned sale of the US operations of its short-video subsidiary TikTok, by expanding the country’s list of controlled exports to include the algorithms that power the viral video app.
Unlike the US, China has a small and very rarely used set of export controls, which have so far been most notably deployed on the rare earth metals found in consumer electronics such as smartphones.
As a result, there is little precedent to understand how the government might use its new list to influence deals by ByteDance and other tech companies. Is China serious about blocking a TikTok sale — or just saving face after a series of hawkish moves by the US?
Here is what China-based experts know about the new measures, and what they signal politically.
What do the new export rules do?
Last Friday, China’s Ministry of Commerce updated its list of “forbidden and restricted technology exports” to include, among many other things, “personalised information recommendation services based on data analysis”.
TikTok’s addictive success has partly resulted from such recommendation algorithms, which push new videos to users based on their previous viewing history.
The export of such services is restricted, not banned, which means that companies like ByteDance may still be able to sell them abroad. But they would have to apply for government approval, which can take up to 30 business days, according to the regulations.
Are the new rules targeted at ByteDance?
ByteDance is not nearly as strategically important to Beijing as Huawei, so the new rules are unlikely to have been designed solely with the aim of helping the company.
The rule change also comes as part of a broader, long-running overhaul of China’s trade controls, which it has been beefing up since the beginning of the US-China trade war.
However, government adviser Cui Fan told the Financial Times that the timing of the release was because of the “current international situation”. On Saturday, state news agency Xinhua quoted Mr Cui singling out ByteDance’s sale of TikTok as a deal that would require government approval under the new export measures.
According to Feng Chucheng, partner and political risk analyst at consultancy Plenum, releasing the new export list now serves partly as a government response to the domestic nationalist anger that has been building against the forced sale of TikTok and the company’s compliance.
“The government monitors online opinion and feels it has to respond to it. But it has to be a very delicate response: they want to tell people they don’t agree [with the TikTok sale], but they don’t want to trigger another US retaliation,” said Mr Feng.
Mei Xinyu, a researcher at a commerce ministry-affiliated think-tank, said the rule change also served as a reminder to the US government and companies involved that China could still have a say in the sale.
Does the rule change help or hinder ByteDance?
The effect of the rule change is likely to be complicated, even before Beijing decides whether or not to block the export. On the one hand, it may scare off potential buyers, who do not want to commit to negotiations that could be called off by Beijing. However, it may also give ByteDance some leverage by allowing it to stretch out its negotiations with the US.
According to Mr Feng, the company could argue to the US Treasury that the November 12 deadline on its sale of TikTok should be extended to allow time for Chinese approval. Such a delay would be feasible since US president Donald Trump’s executive order gave Cfius, the Treasury committee overseeing foreign investment, the option of adding a 30-day extension.
The new rules gave ByteDance “tools to defend its interests” from “a malicious acquirer” seeking to buy its artificial intelligence algorithms under US pressure, said Shen Yi, director of the Research Centre for the Governance of Global Cyberspace at Fudan University in Shanghai.
“The update of the export list at this time plays exactly such a role: ByteDance can at least have a little room for bargaining,” Mr Shen said.
What if Beijing blocked the export of TikTok’s algorithm?
If China ultimately chose not to approve the export of TikTok’s algorithm, it is unclear how ByteDance could create a politically acceptable solution to sell off its US operations without sharing its code base.
In the most limited sale scenario, the company could keep control of the recommendation algorithms that power TikTok, and would update them while its US buyer was responsible for content moderation policy and user data.
Such a scenario would mean the US buyer saved costs on the engineers it would need to hire to maintain the code base itself. But it would also mean that ByteDance could be open to further accusations of interfering with the US app’s recommendations, defeating the original purpose of the sale.
What are the chances of Beijing imposing a block?
Mr Mei said the limited scenario, in which ByteDance’s Chinese engineers still ran the technology, could be allowed by Beijing. “But if this technology is one of the assets included in the deal, I don’t think the Chinese government can approve that,” he said.
However, any move by Beijing to hinder the sale would risk provoking the US into further retaliation.
“China’s top priority is not saving one single company, but getting through the upcoming US election. The popular theory among Chinese policymakers is that Trump wants to push the bilateral relationship to a position so bad that [Democratic presidential candidate Joe] Biden can’t save it. As a result, China is trying not to take the bait,” said Mr Feng.
Additional reporting by Sherry Fei Ju in Beijing
Source: Economy - ft.com
