TikTok wants to distance itself from China — but Beijing is getting involved

China and U.S. flags are seen near a TikTok logo in this illustration picture taken July 16, 2020.
Florence Lo | Reuters

BEIJING — China says it would "strongly oppose" a forced sale of TikTok, making clear the government's involvement with the social media giant that's trying hard to distance itself from Beijing authorities.

The Ministry of Commerce said Thursday that a sale or spinoff of TikTok from its Beijing-based parent ByteDance is subject to Chinese law on tech exports — which requires licenses for the export of certain technology based on national security concerns. ByteDance also owns Douyin, the Chinese version of TikTok that's popular in the country.

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"The Chinese government would make a decision in accordance with law," said spokesperson Shu Jueting in Chinese, translated by CNBC.

Shu was speaking at the ministry's weekly press conference, hours ahead of TikTok CEO Shou Zi Chew's testimony before a U.S. House of Representatives committee.

Lawmakers questioned Chew for more than five hours, and wanted clarity on TikTok's ability to operate independently of Chinese influences on its parent.

ByteDance did not immediately respond to a request for comment on the Chinese Commerce Ministry's remarks.

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The questioning did not appear to relieve U.S. lawmakers.

"At the end of the day, it was clear from the testimony that Mr. Chew reports to the CEO of ByteDance. ByteDance controls TikTok," Cameron Kelly, visiting fellow at Brookings Institution, told CNBC's "Squawk Box Asia" Friday. Kelly used to be a general counsel at the U.S. Department of Commerce from 2009 to 2013.

Kelly said the evidence that ByteDance has legal control of TikTok increases U.S. lawmakers' doubts over how well the app can demonstrate its independence through restructuring.

TikTok has a "Project Texas" plan to store American user data on U.S. soil — in a bid to show the company's claims that mainland Chinese authorities have no access to them.

Beijing ... is now double-daring Congress and the Administration to 'make my day.'
Daniel Russel
Asia Society Policy Institute

"I don't think a shutdown a ban or a complete divestiture [of TikTok] is needed. But I do think you have to separate that legal control," said Kelly, noting that could be done through a trust structure. 

But the commerce ministry's claim of control over a TikTok sale or spinoff indicates Beijing wants to be involved.

"The Chinese government's public declaration that it would block the sale of TikTok in the U.S. has little to do with protection of Chinese algorithms and technology and a lot to do with giving Washington a taste of its own medicine," Daniel Russel, vice president for international security and diplomacy, Asia Society Policy Institute, said in a statement.

"Beijing, having heard [U.S. Commerce] Secretary Raymond's lament that banning TikTok would infuriate voters under 35, is now double-daring Congress and the Administration to 'make my day,'" Russel said. 

The U.S. has increased restrictions on the ability of American businesses and individuals to work with Chinese businesses on critical tech for high-end semiconductors.

When asked about the commerce ministry's remarks Thursday, TikTok's CEO said the app isn't available in mainland China and is based in Los Angeles. But he said the company did use some of ByteDance's Chinese employees' expertise on "engineering projects."

Chew also told U.S. lawmakers that China-based employees at its parent company ByteDance may still have access to some U.S. data, but that new data will stop flowing once the firm completes its Project Texas plan.

Official Chinese comments have previously emphasized that China-based companies should comply with local laws and regulations when operating overseas.

It's not immediately clear how China's export control law, enacted in December 2020, might apply to TikTok.

Different types of exports are managed by different government organizations, "each of which has a separate regulatory system," the EU Chamber of Commerce in China said in its latest position paper. It called for greater clarity on the roles of the different bodies involved with implementing the export control law.

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