TikTok Sale Imminent, CNBC Says, But New Chinese Tech Export Rules Could Be An Obstacle

Chinese-owned video sharing app TikTok has selected a buyer for its U.S., New Zealand and Australian assets and may announce a deal on Tuesday, CNBC reported.

However, the Chinese government has created a potential obstacle to efforts by TikTok's parent internet tech firm ByteDance to sell off these assets to overseas buyers.

Beijing has asserted it can block any such deal to foreign companies by imposing tighter restrictions on certain technology exports. Specifically, the Chinese Commerce Ministry added speech and text recognition – key elements of TikTok’s technology -- to a slew of products that will now need government approval prior to their sale to foreign entities.

China had not made any changes to its technology export list since 2008, the Wall Street Journal reported, citing a Commerce Ministry statement.

President Donald Trump has demanded that ByteDance divest its U.S.-based TikTok assets over concerns that the app could be used by the Chinese Communist Party to store and share data of U.S. users. Although ByteDance has denied such allegations, it has since entered into asset sale talks with Microsoft (MSFT) and Oracle (ORCL).

Walmart (WMT) has also expressed an interest in TikTok in partnership with Microsoft, according to reports.

Private equity firm Centricus Asset Management Ltd. and software company Triller Inc. said on Friday they offered to buy TikTok’s operations in some countries for $20 billion.

“We are studying the new regulations. ... As with any cross-border transaction, we will follow the applicable laws, which in this case include those of the U.S. and China,” ByteDance General Counsel Erich Andersen said in a statement.

But Cui Fan, professor in international trade at the University of International Business and Economics in Beijing, told China’s state-controlled Xinhua news agency that ByteDance may now have to suspend talks on TikTok’s sale.

On Monday, China’s Foreign Ministry again criticized the U.S. government for its efforts to ban TikTok and messaging app WeChat.

“We are opposed to the U.S. abusing the national security concept and state power to suppress specific businesses of other countries,” said Foreign Ministry Spokesman Zhao Lijian. “The U.S.’s attempt to take economic bullying and political manipulation against non-American companies, whether it is politically coerced transaction or government enforced transaction, is no different from plundering.”

Any such delay in the disposition of TikTok’s U.S. assets could lead to an outright ban of the app by the White House prior to the November presidential election.

TikTok has already asked a federal judge in the U.S. to prevent the Trump administration from implementing such a ban.

“[Artificial intelligence] is a foundational technology and is one of the key sectors that China aims to lead, competing with the U.S.,” said Rebecca Fannin, founder of Silicon Dragon Ventures to Bloomberg. “This pushback by Beijing could be seen as part of the growing U.S.-China tensions and tech cold war.”

Zhaokang Jiang, a trade attorney and managing partner of GSC Potomac, said it could take ByteDance 30 days to secure approval for sale of TikTok’s U.S. business.

Kendra Schaefer, head of digital research at consultancy Trivium in Beijing, thinks the Chinese government is doing something similar to what Washington has been doing – placing restrictions on the other country’s leading tech firms.

“Beijing’s responses to Washington over the past five months have largely been designed to appear retaliatory, but are in fact carefully calibrated to place Beijing on equal footing with the U.S. while not escalating tensions -- yet,” she told Bloomberg. “This move is no exception: it may give Beijing more equal footing so that decisions can’t be made by the U.S. unilaterally.”

Schaefer cautioned that this does not necessarily mean Beijing “will move to nix the [TikTok] deal.”