Why selling TikTok is nearly impossible despite US pressure

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A bill known as the "TikTok Act," which threatens to ban TikTok in the United States unless the company cuts ties with ByteDance and China, has received partial approval. The House of Representatives voted 362 in favor, 65 against, sending it to the Senate for further consideration. Despite the social network's apparent displeasure, there is hope that the Senate will pass a favorable resolution. If not, President Joe Biden is ready to sign the bill into law.

Under the "TikTok Act," officially called the "Protecting Americans from Apps Controlled by Foreign Adversaries Act," ByteDance is required to cease operations in the U.S. within 180 days of the law's passage, and if it fails to do so, the app will be banned.

According to recent reports, TikTok is strategizing to challenge the legality of the law by invoking the First Amendment to the U.S. Constitution to oppose the forced liquidation.

Analysts say the law's main goal is not to block TikTok, but to facilitate its sale to a domestic entity, thereby severing its ties with China. Recognizing the platform's importance in attracting young voters, both Democrats and Republicans see TikTok as a crucial tool in a busy election year.

However, the feasibility of selling TikTok remains in question. ByteDance's reluctance to comply, as well as China's likely opposition, create significant obstacles. In addition, Chinese regulators appear to be underestimating their influence in U.S. political circles.

The sale of TikTok requires Chinese approval

ByteDance, the parent company of TikTok, originates from China, although it is officially incorporated in the Cayman Islands. Any sale or merger involving ByteDance or its subsidiaries requires approval from Chinese regulators. Given the current circumstances, it seems unlikely that such approval will be granted.

It should be noted that TikTok operates through four main organizations located in different parts of the world, including Singapore, Australia, the UK and the US. If ByteDance is required by law to sell TikTok's U.S. operations, the deal would require Chinese authorization.

Analyst Paul Triolo emphasized that the Chinese government is unlikely to approve forced mergers or acquisitions of this nature. The government typically requires direct approval for any purchase, sale or merger involving Chinese companies, and would likely oppose it. Triolo suggests that Chinese authorities may have already warned ByteDance against such actions.

However, the problem goes beyond business aspects; it involves technological issues as well, particularly the patented TikTok algorithm. Richard Windsor of Radio Free Mobile stressed that China is keen to prevent its technology from spreading to foreign organizations. This view comes from the belief that technologies such as the TikTok algorithm are critical to national security and should remain under Chinese control.

Windsor explained that the TikTok algorithm, developed by ByteDance, is known for its video characterization capabilities and user matching features. China views the algorithm as a cornerstone of its national security and has repeatedly stated its intention to maintain control over such technologies.

China accuses the US of intimidation

The introduction of the "TikTok law" in the US has prompted a backlash from China's Ministry of Foreign Affairs, accusing US authorities of using state power against ByteDance. This reaction demonstrates China's opposition to intimidation tactics by the United States.

In the midst of these geopolitical tensions, potential buyers of TikTok have emerged, awaiting approval of any potential sale. In particular, figures such as Bobby Kotick, former CEO of Activision Blizzard, and Steven Mnuchin, former U.S. Treasury Secretary, have expressed interest in acquiring the social network.

Mnuchin has emphasized the importance of passing legislation to facilitate the sale of TikTok, arguing that the platform should be owned by U.S. companies. This sentiment reflects concerns about Chinese control and manipulation of citizens, highlighting the ongoing debate surrounding the fate of TikTok in the United States.

As the Senate debates the bill, the future of TikTok in the United States remains uncertain, with significant developments expected in the coming weeks.

Jonathan Rowe

Jonathan Rowe

The creator and main author of the site is Jonathan Rowe. Trader and investor with many years of experience. A graduate of the Massachusetts Institute of Technology with over a decade of experience developing applications for financial and investment institutions.

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