Authors: Daniel Ho & Kathyrn Chong Region Head: Kathyrn Chong
Editor: Sakshi Sanganeria
Illustration by Jasmine
Last winter, after TikTok’s massive 110 million downloads just within the US, the US government started monitoring TikTok and pushed for investigations of the ‘potential national security threat’. It also accused TikTok of performing user data transfers to servers accessible by the Chinese government. The Covid-19 lockdown in March 2020 led to two billion downloads worldwide. The issue escalated in August when President Trump signed the executive order to force the sale of TikTok’s US operations- initially giving ByteDance, TikTok’s Chinese parent company, 45 days to sell, but then extending this period to 90 days. Consequently, TikTok sued the Trump administration for its banning order and alleged that the accusation of TikTok being a ‘threat to national security’ was invalid. The order attracted many high-profile suitors like Microsoft and Oracle. After Microsoft stopped pursuing TikTok given the rejection of its bid, Walmart and Oracle started chasing the deal (Tillman, 2020; Kharpal, 2020).
This article analyses the rationale behind China’s opposition to divesting TikTok to Oracle, its impacts and the future implications of this deal.
Rationale & Impact of China’s opposition to divesting TikTok to Oracle
The divesting of TikTok to Oracle may entail the transfer of TikTok’s core technology, which China argues would be used by the US to launch cyber-attacks, and thus constitutes a ‘national security threat’ (Wang, 2020). ByteDance would have to transfer domestically developed core technology, such as its software codes and usage rights, to Oracle if divested to it, since the operations of TikTok depend entirely on its domestic technology (Reuters, 2020). China’s Ministry of Commerce made an announcement regarding the addition of 23 new technologies to a list of exports subject to government approval and licensing. These include “artificial intelligence” and “information possessing technology”, which are core to TikTok’s interface and algorithm (Broadman, 2020). Despite China’s insistence that the revision was not targeted towards any one company, the timing is oddly convenient- considering that the last revision was 10 years ago (Global Times, 2020). Indeed, ByteDance is already in the midst of applying for an export license from Beijing. This means that China has control over the deal as it has to give the green light for the export license for the deal to succeed.
Apart from the potential national security threat, allowing TikTok to divest to Oracle would undermine China’s authority globally amidst the US-China trade war. Chinese officials felt that this deal was being ‘forced’ and would thus make China look ‘weak in face of pressure from Washington’ (Zhai et al., 2020), undercutting China’s presence on the global stage. China went on to accuse the US and India for breaking the World Trade Organisation (WTO)’s global trade rules after the US and India targeted Chinese apps with bans in their countries (Bermingham, 2020).
China is wielding an odd double edged sword: The country has made its frustration with the bans evident- and yet is reluctant to give in to the TikTok deal because it is expected that the US would persist in repressing China’s advances in technology in areas like aerospace, AI, nanotechnology and robots (Wu, 2019).
Huawei? Yes. TikTok? No.
TikTok’s divestiture to Oracle would set a precedent for similar business arrangements for future expansion of Chinese companies to the US. President Trump has demanded a cut of the final sale of TikTok’s US operations for his government (Wingrove et al., 2020). The prospect of the US government profiteering from a forced transaction is worrying to China as the terms of the deal are effectively dictated by the US government. Allowing such a deal to pass through would subject future expansions of Chinese companies in the US to the whims of US political actors instead of the economic forces of the free market. Having said that, China is unlikely to ‘risk big’ to save Tiktok, unlike Huawei.
Although this round of the US-China tech war is reminiscent of the last, ByteDance is not Huawei and matters much less to China-both economically and strategically. ByteDance has around 60,000 employees in China compared to Huawei’s 157,000 (Huawei, 2019). While ByteDance hires mainly fresh graduates from elite universities, Huawei keeps the manufacturing sector afloat by supporting scores of workers directly or indirectly linked to the telecommunications trade. From a strategic viewpoint, Huawei was instrumental in the race to 5G technology while ByteDance is more of a nuisance to the CCP. Beijing’s censors do not appreciate a platform that churns out millions of potentially seditious materials per day. One key indicator of ByteDance trifling status is the lack of a seat for its founders on the national political advisory body unlike his peers at Baidu and Tencent (Yang, 2020). Hence, the divestment of TikTok is hardly going to threaten China’s economic interests.
America’s ill thought out decision: More American Companies in China than vice versa
Far from being outwitted, Mr Xi is in a favourable position to capitalize on the situation. China could retaliate by using the same line of logic, using ‘national security’ as a pretext to gain access to sensitive technologies and stakes in American multinationals. There are more American firms operating in China than vice versa, putting the US in a far more vulnerable position in a tit-for-tat. In 2019, the US invested 14 billion into the Chinese market compared to less than 6 billion of Chinese investment in the US. The Chinese market accounts for more than 30% of the global profits for manufacturing giants such as General Motors, Nike, Coca-cola, P&G, Boeing etc. (Wei, 2020). According to the US-China Business Council, 86% of members have reported a negative impact on business with China amidst intensifying bilateral trade tensions (US-China Business Council , 2020). The unequal distribution of risk does not bode well for American business interests operating in the sizable Chinese market.
A much more insidious implication of the TikTok ban is that it legitimizes Beijing’s neglect of the rule of law. In the domestic economy, this translates to a greater interference with the private sector. Party committee members already represent the CCP in most state-owned and private companies. However, policy announcements made by senior CCP officials in recent weeks have hinted at an increased role committee members will play in the operation decisions of private companies (Mitchell, 2020). By meddling with free enterprise, President Trump has provided justification for Beijing to do the same. Any hope for a more market-oriented, rule-based economy in China is dashed as Beijing continues to tighten its grip on domestic businesses. On the international stage, Trump’s decision to overstep legal boundaries also undercuts many of the United States’ criticisms of China (Wei, 2020). From democracy in Hong Kong to Uyghur concentration camps in Xinjiang, Mr Xi will find no compelling reason to reverse course on these issues if the very exponent of rule-based governance is flouting its own laws. Violating human rights and international law in the name of “National Security” may become more commonplace across the globe and this would be inimical to the West’s efforts to promote democratic values.
Some had pinned their hopes on the November election, but it would be too little too late. Firstly, the winding down of Mr Trump protectionist trade policies is not on the top of Mr Biden’s agenda. It is likely that the tech cold war will persist even with a change of administration. Secondly, assuming Mr Biden is able to strike a more conciliatory tone with China, the damage has already been done. The ban of TikTok symbolizes a shift away from norms and rules, a trend China may ride on as it pursues its national interests with impunity.
The Way Forward
There is little doubt that China holds all the cards in this tech showdown. It has the means to stall an unfavourable deal and the means to leverage on it if it does go through. Trump may tout that he is “Tough on China''. Ironically, this Tiktok debacle has only made China a much tougher foe to deal with moving forward.
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