TikTok caught in US-China battle over its powerful algorithm
The US and Chinese governments are battling for control over the algorithm that powers TikTok, with the short-form video app trapped in a geopolitical tug of war over its future.
ByteDance, the Beijing-based company that owns TikTok, has faced US demands that the app be sold to cut ties to its home country, while the Chinese government has taken legal measures to prevent any divestment without its consent.
The heart of the conflict is which country can lay claim to TikTok’s powerful algorithm, according to multiple people familiar with continuing deliberations and international legal experts.
The Chinese government is likely to block ByteDance from selling TikTok’s algorithm technology, according to experts and TikTok insiders. Beijing introduced a new export restriction to squash any deal without its approval when the Trump administration tried to ban the app in 2020.
TikTok’s algorithm has been touted as one of the most advanced uses of AI in consumer technology. It is considered more effective than rivals such as Meta at presenting users with content they are likely to be interested in that does not necessarily come from friends’ recommendations.
That has given the app an uncanny ability to serve up addictive lip-sync and dance videos that capture the attention of its 1bn users worldwide. But critics contend it could be manipulated to serve up propaganda or polarising material — a claim denied by ByteDance.
“China won’t allow TikTok’s algorithm to be exported,” said Keith Krach, the US businessman and former politician who led the Trump administration’s attempted crackdown on TikTok. “You can’t split the baby in two.”
The predicament has created a high-stakes moment for TikTok’s chief executive, Shou Zi Chew, who is set to testify before the US Congress on Thursday.
According to written testimony posted ahead of the hearing, he will tell the House of Representatives Energy and Commerce Committee: “TikTok has never shared, or received a request to share, US user data with the Chinese government. Nor would TikTok honour such a request if one were ever made.”
Separately, he appealed directly to the app’s 150mn US users in a video showing the US Capitol in the background on Tuesday. “Some politicians have started talking about banning TikTok,” he said. “Now this could take TikTok away from all 150mn of you.”
Concerns over the algorithm, alongside national security fears that US user data could be harvested for espionage purposes, have led the Committee on Foreign Investment in the US (Cfius) — an inter-agency panel that evaluates foreign investment — to demand that its Chinese owners sell their stakes in TikTok or potentially face a ban.
TikTok said 60 per cent of ByteDance shares are owned by global investors, while 20 per cent are owned by employees and a further 20 per cent by its founder Zhang Yiming.
But Zhang has control over the company by way of owning a separate class of shares with additional voting rights, people close to ByteDance have said.
China’s foreign ministry last week demanded that Washington “stop unreasonably suppressing” TikTok, noting the US had failed to produce any evidence to show the app threatened its national security.
Last year, China introduced the world’s first rules for regulating and monitoring tech algorithms — with the one that underpins TikTok listed in the country’s official algorithm database last year.
The database also lists the algorithm’s owner as Beijing Douyin Information Technology, ByteDance’s main Chinese entity, where an official from China’s internet regulator is a director and has a say over any acquisition or spin-off.
TikTok has also become a flashpoint for tensions between the west and China over concerns that user data could be transferred to China’s communist government. Critics say the Chinese state could use this for espionage.
TikTok has always denied it would submit to such demands. However, local laws could mandate that Chinese companies disclose data to the state.
Growing concerns over TikTok have led to the app being banned on official government devices in the US, UK, Canada and the EU, as well as on official work devices for staff at news organisations such as the BBC and Danish broadcaster DR.
“The CCP has a record for using social media as a tool for repression. This isn’t abstract to think of how they might use this data. It is simply applying the norms they have in their own country,” said James Bethell, a member of the UK’s House of Lords and of the Inter-Parliamentary Alliance on China. “I don’t see how a Chinese-owned TikTok solves that problem . . . and I am sceptical a UK government can ever trust [one].”
TikTok has said that the best way to address national security concerns is not through divestiture but through “transparent, US-based protection of US user data and systems, with robust third-party monitoring, vetting and verification, which we are already implementing”.
To address the backlash, TikTok has spent around $2bn so far on “Project Texas”, a partnership with cloud software group Oracle. User data will be routed through its servers and access to US data will be restricted only to those with authorisation.
Oracle is also reviewing TikTok’s source code, the technological architecture underpinning the app, to assess its security risk. Under current proposals, third parties, including Cfius and the US government, will have approval authority over parts of TikTok’s business.
TikTok has a similar plan in Europe, called Project Clover, to fence off data in three centres: two in Ireland and one in Norway.
After ByteDance’s run-in with the Trump administration, the group moved to strategically add additional American stakeholders in December 2020. The company had benefited from the help of shareholder Bill Ford at General Atlantic, a big Republican donor, navigating the tense political waters.
Despite not needing more capital, ByteDance raised about $5bn at a $180bn valuation to broaden its base of US shareholders, including Washington-based private equity group Carlyle, according to people familiar with the matter.
These changes have not proved enough to satisfy those overseeing the Cfius process. This includes Lisa Monaco, the US deputy attorney-general who has emerged from within Joe Biden’s administration as one of the fiercest advocates for a sale, according to a person familiar with the matter. Her office did not respond to a request for comment.
Another difficulty is that any US companies that could afford to buy TikTok, such as Meta or Google, would probably face antitrust challenges. In 2020 a coalition of Oracle and Walmart emerged as a likely buyer that could appease the White House, and some have suggested a similar solution now could be revived. Oracle did not respond to a request for comment.
Another route to divestment would be an IPO. But ByteDance has shelved plans to list overseas after Beijing cracked down on tech giants, and the public markets cooled amid a broader downturn.
Chew has said the company has “no concrete plan” to launch an IPO. TikTok said: “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.”
Meanwhile, a group of Silicon Valley investors and tech executives, including Peter Thiel, Vinod Khosla and Keith Rabois, have formed an anti-China alliance to lobby for protecting US tech interests. The Hill & Valley Forum, as it is known, is convening a dinner on Wednesday night with around 200 expected attendees, including elected officials. TikTok will be among the talking points. The Wall Street Journal first reported news of the dinner.
“There is a near unanimity among attendees that TikTok poses a serious national security risk to the US and that the status quo cannot continue,” said Jacob Helberg, a former Google policy adviser who is leading the group and who was recently appointed as a commissioner on the US-China Economic and Security Review, a US government agency.
Whether there is a forced sale or a ban, some experts warn of China possibly retaliating and of that spreading beyond internet companies.
“The risk that the US faces is that China may respond,” said Anupam Chander, a professor in global internet regulation at Georgetown University. “[Any] TikTok ban could be devastating for modern international trade.”
Read the full article Here
