31 October 2020 06:57 AM

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M.K.BHADRAKUMAR | 22 SEPTEMBER, 2020

Chinese Ingenuity Gets Banned Tik Tok Back Into the US

Deal signed


US president Donald Trump told reporters at the White House on Saturday that he backs the deal between TikTok owner China’s ByteDance, Oracle Corp, and Walmart to create a new company known as TikTok Global.

It conflicts with Trump’s own earlier order for Beijing-based ByteDance to divest the video app. Evidently, billionaire-president Trump understood all along that one doesn’t kill the goose that lays the golden egg. ByteDance is a money spinner.

TikTok’s active user details tell an epic story. As of Jan. 2018, the Chinese company had about 11 million American users; that figure touched 27 million in next one year; by June 2020, that number had soared to more than 91 million; today, over 100 million Americans are monthly active users of TikTok, (over 50 million as daily users.)

Globally TikTok registered similar surges, too. The company had about 55 million global users by Jan. 2018, which ballooned to more than 700 million active users by July 2020, surpassing 2 billion global downloads daily.

For sure, Trump is determined to make TikTok an American pie. What China virus? Beijing has been closely watching Trump’s inexorable metamorphosis.

On Saturday, when Beijing began sensing that Trump can’t do without TikTok, China’s Commerce Ministry made an enigmatic statement: “China urges the US to abandon bullying, cease wrongful actions and earnestly maintain fair and transparent international rules and order. If the US insists on going its own way, China will take necessary measures to resolutely safeguard the legitimate rights and interests of Chinese companies.”

Simply put, Beijing will exercise its right to have the final say in the making of TikTok Global, but is also betting that Trump is in a jolly mood.

Indeed, Trump is on a roll. He just got an offer Friday from God to nominate a Supreme Court judge who could tilt the fountainhead of American justice irrevocably right-wing and potentially hand down a verdict favouring his victory in a disputed election on November 3, if push comes to shove.

The Trump administration appeared to toughen its stance Friday, citing national security grounds to clamp down on TikTok’s functionality in the US from Sunday. But Beijing correctly sensed that Trump was only posturing and the TikTok saga was far from finished yet.

So far, what we know is that the new TikTok Global will be headquartered in the US, possibly in Texas. Oracle Corp, owned by billionaire Larry Ellison (who is an old friend of Trump’s), has said it will take a 12.5% stake in TikTok Global and store all its US user data on its cloud to comply with US national security requirements, while the retail giant Walmart Retail has said it would take a 7.5% stake.

Although we do not yet know the implied valuation for TikTok Global as a result of these investments, Oracle and Walmart maintain that the new company will be majority-owned by US investors. Of course, Beijing-based ByteDance’s investor base is also to be reckoned with — and ByteDance will own 80% of TikTok Global.

Now, considering that US investors currently own about 40% of ByteDance anyway, Oracle, Walmart, and ByteDance’s US investors ought to own, directly or indirectly, about 53% of TikTok Global. Meanwhile, ByteDance shies away from commenting.

Multiple factors must be working in Trump’s calculus. One, Oracle and Walmart are big players on Wall Street; two, the deal can be projected as a triumphal moment for “America First” policy agenda; three, the deal also averts alienating TikTok’s young users ahead of Nov. 3 election, counted in tens of millions; four, ByteDance has agreed to create 25,000 new US jobs, up from a little over 1,000 now; five, there could also be a $5 billion US “education fund” as part of the deal.

On that last bit, Trump boasted, typically, before a rally of supporters in Fayetteville, North Carolina on Saturday: “I said, you know, do me a favour, could you put up $5 billion into a fund for education so we can educate people as to the real history of our country, not the fake history.”

Whereas, in reality, Oracle and Walmart say (alongside ByteDance’s top US investors General Atlantic, Sequoia and Coatue) that they would create an educational initiative to deliver an artificial-intelligence driven online video curriculum for children, from basic reading and math to science, history and computer engineering. They haven’t disclosed how much they would spend on the proposed education initiative, but TikTok Global would pay more than $5 billion in new taxes to the US Treasury.

No doubt, it is a “win-win” for Trump and Wall Street. But there are caveats, too. Thus, ByteDance will get to keep TikTok’s source code under the deal. Oracle CEO Safra Catz says his company will ensure “a highly secure environment to TikTok and ensure data privacy to TikTok’s American users, and users throughout the world.”

Incidentally, Catz had served on Trump’s transition team in 2016, while Oracle’s co-founder and chairman Ellison is one of the few top technology executives to openly support Trump in the November election.

Indeed, ByteDance’s ownership of TikTok could eventually change, as it is planning an IPO of TikTok Global on a US stock exchange in a year’s time or so. Above all, the bottom line remains: Beijing also has to approve the deal.

Hinting at back channel conversations, Trump said on Saturday, “We’ll see whether or not it all happens.” Beijing’s first reaction may have come overnight in an article today titled Chinese govt not an outsider in the TikTok deal, authored by Hu Xijin, the influential editor-in-chief of Global Times (also published in People’s Daily.) Hu wrote,

“This plan is relatively more reasonable to ByteDance. The plan shows that ByteDance’s moves to defend its legitimate rights have to some extent worked. The Chinese government’s latest restrictions on technology exports, including AI algorithms, have also influenced how the things are going… new plan avoids the worst scenario, and ByteDance will be able to retain some of its key interests.”

That is to say, Beijing is complaining, but also pragmatically adapting to a new paradigm. No doubt, this is an inflection point for socialism with Chinese characteristics. A Chinese company born and brought up in Beijing is taking to the big blue sky. Like any mother, Beijing will pine for the child leaving home, but also take pride in its parentage of a born winner.

Quintessentially, this is also a defining moment for China’s commitment to globalisation. The TikTok Global deal shows a way to upgrade the Sino-American interdependency. It signals that decoupling of the two economies is not an absolute must. Last but not the least, it really doesn’t matter whether a cat is black or white, as long as it catches mice.

However, the best part about Chinese ingenuity is its perfectly-timed September 8 launch of Beijing’s global data security initiative. To quote from a lengthy 3-part commentary titled World needs fair rules of data security in the People’s Daily,

“The Global Initiative on Data Security, focusing on core issues in the world’s digital security governance, aims to offer Chinese schemes and contribute Chinese wisdom to enhancing global digital security governance and promoting sustainable development of digital economy, by regulating government behaviours, promoting shared responsibilities of enterprises, and advocating cooperation to cope with security risks.”

In an ideal world, the Chinese initiative should have carried Washington’s imprimatur as a mark of American leadership in the formative period of the development of digital economy, for the making of a set of universal rules. But life is real. And Beijing has seized the great pioneering initiative.
 

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