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Dado Ruvic/Reuters
New York Times
How TikTok’s Owner Tried, and Failed, to Cross the U.S.-China Divide
The founder of ByteDance, Zhang Yiming, dreamed of building a global
tech company based in China. Then the geopolitical reality set in.
By Raymond Zhong
Aug. 6, 2020
The Chinese entrepreneur behind TikTok took ample precautions when he
set out to straddle the tech world’s most treacherous divide: the one
separating China’s tightly controlled internet from the rest of the
planet.
He made TikTok unavailable in China so the video app’s users wouldn’t
be subject to the Communist Party’s censorship requirements. He stored
user data in Virginia and Singapore. He hired managers in the United
States to run the app and lobbyists in Washington to fight for it on
Capitol Hill.
None of that counted for much in the end. With TikTok now negotiating a
sale to Microsoft under intense pressure from President Trump, who said
on Monday that he was giving the go-ahead to such a deal, the digital
wall between China and the United States is proving to be higher than
ever at this moment of widening conflict between the two countries.
Only this time, it is the U.S. government, not China’s, that is putting
up the barricades — an escalation that could foretell an even more
restrictive time for companies in both nations.
ByteDance, the eight-year-old Chinese social media giant behind TikTok,
is China’s first truly global internet success story. The company’s
founder, Zhang Yiming, 37, began pushing to expand overseas early on,
believing that only a company with worldwide reach could remain on the
technological edge.
But TikTok ended up resonating with American teenagers when even a
platform for short viral videos is subject to political scrutiny. Under
China’s leader, Xi Jinping, the Communist Party has emphasized its
ultimate authority over Chinese people and businesses. Suspicion never
dissipated that TikTok — no matter how many non-Chinese executives it
put in charge — might be unable to withstand pressure from Beijing to
surrender user data or manipulate content.
Similar doubts already hang over many other Chinese tech companies.
TikTok’s sudden change of fortune could force them to re-evaluate their
own international ambitions.
Chibo Tang, a partner in Hong Kong at the venture capital firm Gobi
Partners, said that, increasingly, his advice to Chinese tech companies
was to steer clear of the United States when expanding overseas — to
follow instead the Chinese government’s diplomatic overtures and
investments in places such as Southeast Asia, the Middle East and
Africa.
“If you want to go out and tackle more difficult markets, sure,
but obviously there’s consequences and additional costs,” Mr. Tang
said. “Going forward, Chinese entrepreneurs in these tech companies
should be aware of that.”
One unnamed entrepreneur put ByteDance’s position in even starker terms
to the Chinese tech blog Huxiu on Monday: “Once the U.S. business is
lost, half of the space for thinking about globalization has vanished.”
As uncertainty swirled on Sunday about whether Mr. Trump would allow
Microsoft to continue negotiations with TikTok, ByteDance issued a
late-night statement in China reiterating its commitment to going
global.
“In the process, we are facing all kinds of complex and unimaginable
difficulties,” the company said. The statement cited the tense
geopolitical environment, culture clashes and, in an unusually direct
jab at a competitor, “Facebook’s plagiarism and smears.”
Facebook is rolling out a TikTok-like feature called Reels on
Instagram, which it owns. The company’s chief executive, Mark
Zuckerberg, has also argued that undermining American tech companies
with excess regulation could allow Chinese rivals to export their own,
very different values to the world. Facebook declined to comment on
ByteDance’s statement.
Microsoft said it had received President Trump’s go-ahead for pursuing a TikTok deal.Credit...Hiroko Masuike/The New York Times
For Mr. Zhang of ByteDance, TikTok’s run-in with the Trump
administration has been an education in government relations, though
hardly his first.
Mr. Zhang falls on the geekier side of the tech founder spectrum. He
repaired computers in college, and from past interviews, he appears
most at home talking about algorithms and the flow of information. He
is not a Communist Party member, he told the Atlantic magazine recently.
For many years, he echoed Mr. Zuckerberg in saying he ran a tech
company, not a media outlet, which meant he should not be imposing his
own judgments over content.
“I can’t accurately decide whether something is good or bad, highbrow
or lowbrow,” he told the Chinese business magazine Caijing in 2016.
Mr. Zhang may have thought he was insulating himself in China. But the
perils of that technology-driven approach were made clear in 2018 when
the Chinese authorities shut down one of ByteDance’s oldest products, a
humor app called Neihan Duanzi, for spreading vulgar material.
“For a long time, we put too much emphasis on the role of technology
and didn’t realize that technology must be guided by core socialist
values,” Mr. Zhang wrote in a public letter of apology.
ByteDance’s popular news aggregator app, Toutiao, had also been under
fire for saucy content. In response, Toutiao began featuring more
stories about Mr. Xi at the top of its feed.
By then, ByteDance had already begun expanding in Japan, India,
Southeast Asia and beyond. TikTok was released in 2017 as the
international edition of Douyin, one of ByteDance’s Chinese video apps.
TikTok had some early scrapes with foreign governments. In 2018,
Indonesia temporarily blocked it for hosting inappropriate content.
Despite the challenges, Mr. Zhang said at an event in Beijing that year
that going global was the only way to get access to the talent and
resources needed for long-term success.
He said he had studied another Chinese company’s rapid growth overseas to see how it could be done.
Which company? Huawei.
His choice was prescient in hindsight, though perhaps not in the way he
intended. The Trump administration has for years sought to
undermine the giant Chinese maker of telecommunications equipment and
smartphones. It, too, has been called a national security threat by
White House officials, who fear the Chinese government could use Huawei
gear for espionage.
International growth was top of mind when Mr. Zhang began courting
Musical.ly, a Chinese-made lip-syncing app that had found success in
the United States and Europe. In late 2017, ByteDance agreed to buy
Musical.ly for around $1 billion. ByteDance would later merge the app
into TikTok, giving it a toehold in the West that would eventually
propel it to wider success.
According to people with knowledge of the matter, the two parties did
not approach the Committee on Foreign Investment in the United States,
or CFIUS, to seek its blessing beforehand — a decision that would later
come back to haunt ByteDance.
CFIUS (pronounced SIFF-ee-yuss) typically evaluates foreign deals
involving an American business for possible national security risks.
But it also claims jurisdiction over deals between foreign businesses
that have significant American operations.
As TikTok became a smash hit in the United States, concerns arose about
whether the app was censoring content that might offend Beijing. Late
last year, The New York Times and others reported that CFIUS was
looking into the Musical.ly deal. Washington politicians also began
voicing fears that TikTok could be a conduit for China to meddle in
American elections.
With pressure building, some of Mr. Zhang’s investors and advisers
offered ideas for putting distance between TikTok and ByteDance,
including reorganizing TikTok’s corporate or legal structure.
In an interview in November, Alex Zhu, a founder of Musical.ly who was
then the head of TikTok, said the company wouldn’t rule out such
changes.
“We continuously look at the company structure and optimize the structure,” Mr. Zhu said.
But instead of a major restructuring, Mr. Zhang opted for personnel
changes. This spring, he reshuffled ByteDance executives in China and
said he would personally devote more time and energy to Europe, the
United States and other markets. In May, Liu Zhen, a former Uber
executive in China who had been overseeing ByteDance’s global
expansion, left the company. Mr. Zhu was replaced as TikTok’s head by
Kevin Mayer, a veteran Disney executive in the United States.
ByteDance also embarked upon a lobbying push in Washington to sell the
idea that TikTok’s allegiances were with the United States, not China.
In meetings with lawmakers, lobbyists emphasized the app’s light,
uplifting fare and the fact that many of its top leaders were American
residents.
Last month, when American technology companies including Facebook and
Google began reassessing their operations in Hong Kong in the wake of a
new security law that gave the Chinese government greater powers in the
territory, TikTok went further, announcing that it would stop operating
in Hong Kong completely.
The move let TikTok demonstrate its willingness to stand up to Beijing,
as its head of U.S. public policy later emphasized in an email
newsletter to Capitol Hill. But Hong Kong had not been a major market
for the app, making the decision look more like a publicity stunt than
a self-sacrifice made on principled grounds.
TikTok users took credit for the lackluster attendence at Mr. Trump’s
campaign rally in Tulsa, Okla., in June.Credit...Christopher Lee for
The New York Times
The Trump administration’s scrutiny continued unabated. After Mr. Trump
failed to draw huge crowds at a June re-election rally in Tulsa, Okla.,
TikTok users claimed to have pulled off a prank by registering for
tickets and then not attending the event. In early July, Secretary of
State Mike Pompeo floated the idea of banning the app over security
concerns.
Within weeks, Microsoft said it had received Mr. Trump’s go-ahead for
pursuing a deal to buy TikTok’s U.S. operations. CFIUS had decided to
order ByteDance to divest.
In a letter to ByteDance’s employees on Monday, Mr. Zhang made the
recent turmoil sound more like a technical matter than an existential
threat brought about by hostile geopolitical forces.
He wrote that the company had repeatedly emphasized that it was willing
to make technical changes to address U.S. concerns, yet the order to
sell was made anyway. “We do not agree with this decision, because we
have always insisted on guaranteeing users’ data security, the
platform’s neutrality and transparency.”
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