WSJ Edition | TikTok CEO Says Sale Won’t Protect U.S. Data

WSJ Edition TikTok CEO Says Sale Won’t Protect U.S. Data wsjnewspaper

WSJ Edition reported late Wednesday that the Biden administration was demanding that TikTok’s Chinese owners sell their stakes or face a possible U.S. ban on the app.

Mr. Chew, a Singaporean military-officer reservist, and former Goldman Sachs banker will have the opportunity to respond directly to those demands in the coming days. Mr. Chew is slated to testify before the House Energy and Commerce Committee next Thursday.

The appearance will be TikTok’s highest-profile chance to make a case that it can mitigate the national security concerns expressed by American officials. Increasingly, though, U.S. policy makers are hardening, not softening, their demands. That has turned TikTok into one of the biggest flashpoints in a much wider U.S.-China conflict that has extended beyond geopolitics to issues such as trade and technology.

The standoff centers on the same issues that led the Trump administration to effectively ban Chinese telecom-equipment company Huawei Technologies Co. from the U.S. and then lobby allies to ditch it, too. Politicians have focused on the prospect that the companies could be compelled to help Chinese authorities spy or interfere with communications, according to American interpretation of Chinese law. Some 100 million Americans use the app, which could have political consequences if Washington follows through on its threat to ban it.

Could There Be Legal Challenges?

The Trump administration’s effort to force a sale of TikTok to U.S.-majority ownership ultimately ran aground in court when TikTok and ByteDance sought to block a proposed federal ban. The Biden administration’s move against TikTok could face legal challenges as the company could argue that any forced sale would amount to a ban since the Chinese government likely wouldn’t allow the TikTok algorithm to be sold along with it.

TikTok has tried several strategies to win over Washington, including more than a year of negotiations with U.S. officials over ways to build technical safeguards to ringfence the app’s U.S. operations from its Chinese ownership. Beijing hasn’t publicly weighed in on a potential sale but has increasingly signaled its desire to protect Chinese technology.

A Chinese export ban could prohibit the sale of TikTok’s video-serving algorithm—the secret sauce of its global success—to a foreign buyer. Still, the specter of an outright Beijing veto could damage the chances of reaching an agreement with Washington that doesn’t include an outright sale.

Mr. Chew, who is based in the company’s Singapore office, said he arrived in Washington last week to acclimate and prepare for his Capitol Hill testimony. TikTok has hired experienced Washington advisers to respond to critics. Its Washington staff has grown so fast, it is planning to move out of its WeWork space to its own offices, now under construction.

U.S. Says TikTok is a Threat

Last year, TikTok parent ByteDance Ltd. paid its lobbyists $5.4 million, more than in any previous year. For internet companies, only Inc. and the parent companies of Google and Facebook spent more last year on federal lobbyists, according to OpenSecrets, a nonpartisan platform tracking political spending.

In the interview, Mr. Chew declined to say whether ByteDance Ltd.’s founders were open to selling. The founders own 20% of the company, he said, though super shares give them exceptionally large voting rights. TikTok executives have said that another 60% of ByteDance shares are owned by global investors and 20% by employees.

A Chinese Foreign Ministry spokesman, Wang Wenbin, said at a news conference Thursday that the U.S. should stop spreading false information and suppressing foreign companies. “The U.S. hasn’t been able to prove with evidence that TikTok threatens U.S. national security,” he added.

Mr. Chew ruled out in the near term an initial public offering of TikTok, which some politicians said could address their national-security concerns if it reduced Chinese ownership. Mr. Chew said he and ByteDance have been actively thinking about such a listing but also think it isn’t the right time.

“There’s no concrete plan right now,” Mr. Chew said.

Get Wall Street Journal 2-Year Print Subscription for $480

TikTok is spending billions of dollars over several years to move its users’ data to U.S.- and Europe-based servers and hire independent monitors in an effort it says will protect user data and insulate its video-picking algorithm from outside influence.

The ramped-up push against TikTok in recent months hasn’t been accompanied by the disclosure of any specific intelligence showing China has begun to wield the social-media app in a manner that threatens U.S. national security, congressional aides and former officials have said. Instead, concerns have grown in both major parties as the app has surged in popularity within the U.S.—especially among teenagers—and broader relations with China have become more strained.

Amid that popularity, officials point to a 2017 Chinese intelligence law that requires companies to share customer data with authorities if they demand it for national security purposes. TikTok has consistently maintained that it would never share user data with the Chinese government, but U.S. officials have said companies can’t refuse the demands if they operate in China.

Social-media sites have emerged as a vector for security lapses in recent years, meanwhile, alarming national-security officials about how much data about Americans is available to foreign adversaries through open and accessible sources. National-security officials say there are also concerns about how TikTok could reveal the social ties between Americans—allowing China to map out who is connected to whom based on how people interact with each other on the app said WSJ Edition.

Get WSJ Print Subscription for $318

Some members of Congress say the Chinese company could also influence the content that a billion people see every day, providing a lever of foreign influence or control over public discourse. There is a 2019 report confirming that they sensored the 1989 demonstrations in Tiananmen Square.

TikTok says they updated moderation guidelines.

In the interview, Mr. Chew said his infrastructure spending, dubbed Project Texas in the U.S., would make all that impossible.

“The idea behind Project Texas is it won’t matter what the Chinese law or any law says, because we’re taking U.S. user data and we’re putting it out of their reach,” Mr. Chew said to WSJ Edition.

Mr. Chew said he acknowledges critics’ concerns, which he says aren’t unique to TikTok, and hopes they can seriously evaluate Project Texas on its merits.

“You’re talking about real concerns,” he said to WSJ Edition. “I think these are the real solutions.”

Mr. Chew said the app isn’t currently profitable “because I spent so much money building these data-sovereignty projects around the world.”

He said the costs are worth it. The app, he said to WSJ Edition, could be profitable soon despite all the spending.

Sales Support