U.S. orders ByteDance to divest TikTok or face potential ban, Nikkei Asia, Mar. 16, 2023.
YIFAN YU and CISSY ZHOU, Nikkei staff writers
The U.S. government has told ByteDance to sell its stake in TikTok after more than two years of negotiations failed to convince Washington that the popular short-video app is not a national security risk, according to people familiar with the matter.
The Committee on Foreign Investment in the United States (CFIUS), an agency led by the Treasury Department that evaluates cross-border deals, told the Chinese tech giant to divest its stake, the people said. Failure to do so would leave TikTok facing a possible ban in the country.
CFIUS's move was first reported by The Wall Street Journal.
CFIUS has jurisdiction to recommend a divestiture because ByteDance acquired Musical.ly, a company with a significant U.S. presence that later merged into TikTok, in 2017.
This is not the first time ByteDance has been ordered to unload TikTok. In 2020, then-President Donald Trump issued two executive orders. One banned TikTok in the U.S. but was blocked by a federal judge that year and revoked by President Joe Biden in 2021. The other required ByteDance to divest its U.S. assets and delete all U.S. user data. This order led to CFIUS's order to divest.
"If protecting national security is the objective, divestment doesn't solve the problem -- a change in ownership would not impose any new restrictions on data flows or access," a TikTok spokesperson told Nikkei Asia.
"The best way to address concerns about national security is with the transparent, U.S.-based protection of U.S. user data and systems, with robust third-party monitoring, vetting and verification, which we are already implementing," the spokesperson added.
TikTok CEO Shou Zi Chew is expected to testify before Congress next week to address concerns from lawmakers regarding the app's security and the safety of American users.
Caitlin Chin, a fellow at the Center for Strategic and International Studies (CSIS), said the seemingly sudden call for divestment likely reflects recent developments in the U.S., the EU, Britain and Canada, and it will be difficult for TikTok to find a buyer.
"Very few companies are large and wealthy enough to purchase TikTok, and any technology giant that does have the capability to purchase it also likely has a strategic reason to do so," she told Nikkei Asia.
Chin added that given the U.S. social media market is dominated by a few large companies, even if a direct competitor like Meta or YouTube wishes to purchase TikTok, it could also raise antitrust concerns by increasing market consolidation.
"Even if TikTok does find an American buyer, a change in corporate ownership alone will not improve its privacy or security practices. Mobile apps are very underregulated in the United States, which means that U.S. social media platforms face almost no restrictions on how they collect and share personal information," she said.
TikTok said it is working on a program called Project Texas to bolster data security for U.S.-based users, including moving all U.S. user data to the Oracle Cloud system. China-based employees' access to U.S. data, moreover, is "subject to a series of robust cybersecurity controls and authorization approval protocols overseen by our US-based security team," according to the company.
ByteDance is working on possible solutions to avoid a sale, according to a person close to the situation. The company considered selling TikTok's U.S. operations to Microsoft, and later to Oracle and Walmart when it was first facing bans under the Trump administration.
CFIUS and the Treasury Department declined to comment.