China may prefer TikTok to be banned than fall into US hands

CNN Hong Kong --

The video app is facing an existential threat almost three years after Trump threatened to ban TikTok from America if the Chinese owner doesn't sell it to American investors.

TikTok CEO Shou Zi Chew will be appearing before US lawmakers later Thursday. Many of them want the app to be banned in America because it poses a threat to national security. The demand for a sale grows louder.

Analysts and legal experts say that an outright divestment is unlikely. This is because TikTok's technology is considered sensitive by the Chinese government. They have taken steps since 2020 in order to prevent any sale of its Beijing-based owner ByteDance.

The issue is who controls the algorithms of TikTok and the massive amounts of data collected each month from the 150 million users in the United States.

Some advanced technology, such as content recommendation algorithms, is considered critical by the Chinese government. Chinese officials suggested that the rules governing the sale of this technology to foreign buyers be tightened in December.

According to Brock Silvers, Kaiyuan Capital's chief investment officer, Beijing will not have any say in the US' decision to sell TikTok. However, it will still retain the final approval authority.

He stated that it was also unlikely that Beijing would accept any deal to remove TikTok's algorithms from its regulatory control and direct control.

The algorithms of TikTok are thought to be the key to its success. These algorithms make recommendations based upon user behavior and push videos users like and are interested in.

In August 2020, Chinese regulators added algorithms to the restricted technology list. This was when Trump threatened to ban TikTok if it wasn't sold.

The commentary was published by a professor at the University of International Business and Economics. He stated that the new rules would require ByteDance to obtain a Beijing license in order to sell its technology.

Cui Fan stated to Xinhua that cutting-edge technologies could have an impact on national security and the public welfare and should be considered in [export control] management.

After Beijing added algorithms on its export control list, the TikTok sale to Oracle and Walmart in 2020 hit a snag. After the Trump-era executive order was canceled, the Biden administration replaced it with a more comprehensive directive that focused on technology links to foreign adversaries including China.

Pay attention to regulations

The company is now caught in a geopolitical battle between Washington and Beijing.

Alex Capri, a research fellow at The Hinrich Foundation, stated that the TikTok hearings in America mark the beginning of a regulatory meat-grinder for all [Chinese] technology companies.

Last week, a senior official from China's regulator of traditional and digital media visited Bytedance’s offices. According to a statement posted by the regulator on its website, he urged Bytedance to use'recommendation algorithm' more effectively to spread positive energy and improve review of online content.

This visit shows Beijing's determination to keep its most powerful internet businesses under control. There are also more levers it can pull.

According to Qichacha, in April 2021, a Chinese government entity purchased a 1% 'golden shares' in a Beijing subsidiary Of ByteDance. This subsidiary holds operating licenses for Douyin (TikTok's sister app) and Toutiao (a news aggregation platform).

Capri stated that TikTok's algorithms are truly unique in terms data harvesting and strategic analysis. Therefore, he doesn't believe Beijing will allow it to fall for US interests.

"Unless they can somehow still access TikTok’s data via other means and methods including ongoing cyber intrusion or other forms of backdoor access."

Beijing tightens its grip

Chinese regulators are gradually tightening their oversight of algorithm technology in general.

A new regulation was put into place in March 2022 that required internet companies to register recommendation algorithm registrations with the Cyberspace Administration. This powerful regulator reports to President Xi Jinping.

Rules governing deep synthesis algorithms were also in effect at the start of 2023. They will limit the use of AI-powered image and audio generation software. These technologies are the backbone of popular apps like ChatGPT.

These regulatory developments suggest that TikTok’s recommendation algorithms will be subject China’s export controls, according to Winston Ma, an adjunct professor from New York University School of Law.

'Existential crisis'

TikTok has set up organizational and technical barriers to protect user data from unauthorised access.

Project Texas is a plan that would allow the US government to have oversight over TikTok's data practices. Third-party companies like Oracle and the US government would also be able to do so. TikTok is currently working on Project Clover, a similar plan for Europe.

However, this hasn't helped US officials. Probably because, no matter how TikTok acts internally, China theoretically would have leverage over TikTok’s Chinese owners. (H Huawei took similar measures but it was still kicked out from Western 5G markets.

Capri stated that the concerns would not be addressed even if TikTok was sold to an American buyer.

He stated that a change in TikTok ownership does not solve the problem. "The real problem is data security, and who has access to it, no matter what legal ownership.

He said that the true test is whether user data can effectively be ring-fenced, and privacy and security can also be achieved using data segregation and encryption, among other methods.

Silvers believes both sides will try to reach a solution. However, Beijing retains TikTok's control.

He believes that Beijing would prefer TikTok to leave the US market than give up its algorithm.

Capri stated that if any Chinese company wants to survive increased scrutiny by Western governments, they must entrust their data and undergo rigorous third-party audits and intrusions by the government.

"This is a real existential crisis for Chinese companies operating in the West."