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China Has to Approve TikTok-Oracle Deal Too, ByteDance Says

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09/17/2020 | 12:18pm EDT

By Liza Lin and Eva Xiao

TikTok owner ByteDance Ltd. and Oracle Corp. are waiting to learn whether President Trump will give his blessing to their deal, but another hurdle remains: Beijing still has to sign off too.

Chinese authorities will have to approve the terms of the deal, Bytedance reiterated Thursday, illustrating the tricky path ahead for the deal even if the Trump administration gives its assent.

The Chinese technology startup will have to go through standard regulatory approvals in China and the U.S., a spokesman for Beijing-based ByteDance confirmed.

For deals similar to these, the parties involved typically have to overcome antimonopoly concerns by the governments of both countries. ByteDance will also face scrutiny from Chinese regulators if its artificial intelligence-driven content recommendation engine -- the algorithms widely acknowledged to be vital to its success -- is found to fall under the scope of an updated technology export control list.

China's ministries in charge of commerce and science and technology added such algorithms to an export control list on August 28. This means the social media firm may have to seek approval from local commerce authorities before exporting its technology overseas.

The need for Beijing to approve any transaction adds uncertainty to already convoluted talks, with ByteDance having to straddle the wants of its investors as well as the demands of the administrations of President Trump and his Chinese counterpart Xi Jinping. China and the U.S. are locked in a bitter war over trade and technology that has caught up ByteDance and other Chinese tech giants such as Tencent Holdings Ltd. and Huawei Technologies Co.

On Monday, ByteDance announced it would take on Oracle as a technology partner in the proposed deal. Still, within days, ByteDance and the White House's expectation of a deal appear to have diverged, primarily over the identity of TikTok U.S.'s largest investor.

Under the current arrangement, the Beijing-based company has sought to maintain a majority stake in the company while allowing Oracle to review TikTok's source code and software to ensure there are no backdoors that allow the Chinese government or other entities to access the data, the Journal reported on Wednesday, according to people familiar with the matter.

When asked Wednesday about ByteDance retaining the lion's share of TikTok's U.S. operations, Mr. Trump said: "Conceptually, I can tell you, I don't like that."

In August, Mr. Trump gave the buzzy short video app, which has racked up new users by the million during the coronavirus crisis, 45 days to sell its U.S. operations or face a ban. What ensued was weeks of speculation over the fate of TikTok in the U.S., with companies such as Microsoft Corp. and Twitter Inc. among possible buyers.

"As with any cross-border transaction, we will follow the applicable laws, which in this case include those of the US and China," ByteDance General Counsel Erich Andersen said in an earlier statement in August.

On August 28, Beijing unveiled new restrictions, updating a list of technologies that require government approval before being exported to add content-recommendation algorithms like the one that powers TikTok. The list was last updated in 2008.

The announcement had caught ByteDance by surprise, people familiar with the company said. Chinese regulators made it clear to the Beijing-based social media company that TikTok's underlying algorithm wasn't to be sold under any circumstances, another person familiar with the government's thinking said.

They also told TikTok parent company ByteDance that it would prefer the U.S. operations of the popular short-video app be shut down rather than see it sold to an American buyer, according to people familiar with the matter. TikTok has shared their plans with Chinese authorities, one of the people said.

Bytedance said in a statement the Chinese government has never suggested that it should shut down TikTok in the U.S. or any other market.

China's addition of new technologies to its export control list is a normal and expected move, said Zhang Yansheng, an economics professor at Renmin University. "China is constantly refining its laws and government policies," Mr. Zhang said.

"As the country with the world's most powerful technology, the U.S. has established the most strict, comprehensive export controls. So as another big country, [China] will definitely establish its own corresponding laws and policies."

China's state broadcaster reported on Monday that ByteDance wouldn't sell TikTok's U.S. operations to Microsoft Corp. or Oracle, citing anonymous sources. The company would also not sell TikTok's source code to any U.S. buyers, it said.

A spokesman for China's Foreign Ministry declined to comment on reports about the deal at a regular press briefing on Thursday. The Ministry has previously said that Beijing supported ByteDance in "safeguarding its legitimate rights and interests."

Unlike in the U.S., where technology companies often have an antagonistic relationship with authorities, their Chinese peers often form uneasy alliances with regulators. China's government enlists the country's technology companies for help in policing content, while supporting them with favorable policies and grants and shielding them from foreign competition inside China's borders.

Raffaele Huang contributed to this article.

Write to Liza Lin at Liza.Lin@wsj.com and Eva Xiao at eva.xiao@wsj.com


Stocks mentioned in the article
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MICROSOFT CORPORATION -2.78% 210.2 Delayed Quote.37.11%
ORACLE CORPORATION -4.12% 57.48 Delayed Quote.13.06%
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