After criticism in China for ‘kneeling down’ to the US, ByteDance affirms its control over TikTok Global

US President Donald Trump says TikTok Global will be ‘totally controlled by Oracle and Walmart’
ByteDance, however, says the US-based entity will be its wholly owned subsidiary, and that it will retain a controlling stake after a pre-IPO funding round

TikTok ban

Coco Fengin BeijingandTracy Quin Shanghai

Published: 12:02pm, 21 Sep 2020

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TikTok’s Chinese owner ByteDance, which has been criticised in its home market for “kneeling down” too fast after the Trump administration ordered it to divest its operations in the US, emphasised on Monday that it will retain control over the new US-based entity it plans to form with Oracle Corporation and Walmart.

In a post on ByteDance’s news aggregation platform Jinri Toutiao, the Beijing-based company also denied that it had committed to pay US$5 billion in taxes to the US Treasury or to create a US education fund worth the same amount under the deal.

At a press conference on Saturday, US President Donald Trump said he had approved in principle a proposed deal between Oracle and TikTok for the Chinese video-sharing app to continue to operate in the US under a new entity, TikTok Global, which will be “totally controlled by Oracle and Walmart”.

“All of the control is Walmart and Oracle, two great American companies,” Trump said. “The security will be 100 per cent.”

But ByteDance said in the post on Monday morning that TikTok Global will be its wholly owned subsidiary. ByteDance plans to list TikTok Global “to further enhance the corporate governance structure and transparency”, but even after a small pre-IPO funding round it will still own a controlling 80 per cent stake, it added. Oracle will take a 12.5 per cent stake while Walmart has tentatively agreed to purchase 7.5 per cent, according to earlier statements from the American companies.

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ByteDance’s clarifications on Jinri Toutiao come as it faces intense scrutiny not just in the US, but also in its home country. Netizens accused the Chinese company of having “no backbone” and “kneeling down” too quickly after news first broke about Trump ordering the forced sale, and of negotiations between ByteDance and American tech giants including Microsoft and Oracle.

Under the current agreement, TikTok Global’s board members will include ByteDance founder Zhang Yiming, the existing board members of ByteDance and Walmart CEO Doug McMillon, according to ByteDance’s post on Monday.

While the deal appears to have received tentative approval from the US government, it is also pending the green light from Chinese authorities.

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The Chinese government updated its technology export control list last month to require official permission for technologies such as TikTok’s algorithm to be sent offshore. A government source, who is involved in regulating ByteDance but is not directly involved in technology export controls, told the Post earlier this month that “ByteDance can sell all of TikTok but the algorithms”.

Addressing concerns that the deal may involve TikTok providing its source code for Oracle’s use, ByteDance said in the post on Monday that the current proposal “does not involve the transfer of any algorithms and technologies” although Oracle will have the authority to access the source code of TikTok USA for security checks.

Trump says he approves Oracle’s proposed deal with TikTok in principle

“Displaying the source code is a very common way for multinational companies to resolve local data security issues,” ByteDance said, citing as an example Microsoft opening a transparency centre in Beijing in 2016, allowing Chinese technical experts to view the source code of its products and services for security checks.

At the Saturday press conference, Trump said that TikTok Global is likely to be headquartered in Texas and plans to hire at least 25,000 people.

He also said that the deal would include a US$5 billion US education fund, but ByteDance said in a statement on Sunday that it first heard about the US$5 billion education fund from media reports.

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It is currently unclear whether the amount for this education fund is related to an earlier joint statement by Oracle and Walmart that mentioned that TikTok Global “will pay more than 5 billion in new tax dollars to the US Treasury”.

ByteDance said in its latest post on Jinri Toutiao that the “so-called tax payment of US$5 billion to the US Treasury” was just a forecast of the corporate income tax and other operating taxes that TikTok will need to pay for its business development in the next few years.

“The specific tax amount still depends on the development of the business and the tax structure of the United States,” ByteDance said in the statement, adding: “The tax forecast has nothing to do with this cooperation plan.”

This article appeared in the South China Morning Post print edition as: ByteDance underlines it has control over TikTok Global

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