The quick, forced sale at a discount of TikTok is wrong. Dare I say it, it is unAmerican.
The laughable concept that the sale of a successful tech startup to Microsoft (MSFT) will be improving tech competition is ridiculous.
The presumption from the U.S. president that he can insert himself into these private sector talks, and commandeer a cut of the deal, is shocking. Oh and by my reckoning, it's illegal.
The 14th Amendment says that no U.S. state shall "deprive any person of life, liberty, or property, without due process of law." And many states have similar wording to that in Colorado's Bill of Rights that all persons have an inalienable right to "acquiring, possessing and protecting property."
Yet the U.S. government is forcing TikTok into Microsoft's hands at a bargain US$30 billion price, when earlier estimates suggested it would be worth at least US$50 billion.
President Trump has ordered a ban in 45 days for any dealings with the Chinese companies that own the apps TikTok, and WeChat. Beijing-based ByteDance Ltd. owns TikTok; the WeChat app that's so omnipresent in China is owned and run by Shenzhen-based videogame maker Tencent Holdings (TCEHY).
Tencent is Asia's second-biggest company by market cap, behind Alibaba Group Holding (BABA) . Trump's order bars "any transaction that is related to WeChat" with Tencent. It's unclear how that might affect non-WeChat operations like the best-selling Honor of Kings.
ByteDance is private. It had been hoping to list the entire company in New York or, more likely, Hong Kong.
In the form of TikTok, ByteDance has had the world's most-downloaded app in both of the last two years. It has 1.5 billion monthly users, including 100 million in the United States. So ByteDance was looking at a valuation of US$150 billion to US$180 billion, analyst Ke Yan with DZT Research said this May. Sales in 2019 of US$17 billion were double the US$7.4 billion in 2018.
The sale of a stake earlier this year by shareholder Cheetah Mobile valued the entire ByteDance, including U.S. and Chinese operations, at US$140 billion. That makes it the world's most-valuable startup, according to CB Insights. And the numbers for ByteDance's business are only looking better and better.
Now it appears to be looking at a listing of the Chinese business at around US$100 billion, and offloading its highly successful U.S., Canadian and Australian business to Microsoft for US$30 billion - which sounds about US$20 billion off. That's due to the quick nature of the sale and the small number of large-enough parties to take it on.
The president issued a separate executive order on both TikTok and WeChat, with the ban to go into effect in 45 days. The measures, to be defined later by Commerce Secretary Wilbur Ross, are necessary because the Chinese-owned apps "threaten the national security, foreign policy, and economy of the United States," Trump stated. In the ByteDance order, he said the United States "must take aggressive action against the owners of TikTok to protect our national security."
Prove it.
Nobody here in Hong Kong trusts WeChat. It is well-known to be monitored and censored in China where it's used for messaging but also blogging, payments, hailing a cab, you name it. Use that app at your own risk. It has a relatively small U.S. presence, with around 19 million U.S. users, mainly with connections to China.
But I don't believe TikTok, a hyper-popular short video app used mainly for dancing and lip synching, is a threat to national security. And I do believe Trump wants to force through a sale weighted in favor of the U.S. buyer. He even went so far as to claim this week that the U.S. government - by which he means himself - should get a "substantial portion" of the proceeds as some kind of unprecedented, strange forced-sale finder's fee.
That certainly sounds like robbing someone of their property. Like the U.S. government is acting a little like the mafia, prodding around, "You've got a nice little app here, wouldn't want anything nasty to happen to it."
Yes, TikTok is Chinese. There is certainly a risk that the company will share data with the Chinese Communist Party. However, TikTok says its U.S. data is stored on U.S. shores. Vet that claim if you like, but I really don't see what the issue is. Trump alleges the app may be used to spread misinformation, and perhaps for facial recognition.
TikTok has been running Drake tunes perfectly fine overseas since 2017. It really took off in the United States after it bought Musical.ly in August 2018.
So no nuclear data bomb has gone off while teens have been doing the Renegade. If it's such a potent threat, "either we've missed the threat for three years or it just became one and yet we are waiting 45 days," Derek Scissors, a Sino-U.S. relations expert at the American Enterprise Institute think tank told Reuters.
Now, it certainly alarms me that a Chinese company would have my data. It is worrying that ByteDance, TikTok's parent, last year struck a deal with the Chinese police. On the face of it, China's Ministry of Public Security is looking to improve its propaganda, opening accounts on the company's Toutiao news-feed site, as well as the Chinese-language version of TikTok, called Douyin.
All up and down the administrative chain, the Chinese cops are supposed to be opening social media accounts to spread the good news about the Chinese police. The Chinese cops already have 50,000 social media accounts, apparently, and more than 100 million "fans", leading to almost 100 billion page impressions per year.
More sinisterly, ByteDance and the Chinese police agreed to give full play to the Big Data analysis offered by Toutiao and Douyin. That is going to be used to train the Chinese police in the new media ways of the world. The police news report on the partnership with ByteDance also says that the two sides will cooperate on criminal investigation and network security. Subtle manipulation of the message on the surface of it, potential adaptation of ByteDance data to suit the whims of the command-down Communist dictatorship.
If you want to do any kind of tech business in China, you have to store the data in China. And the control freaks in the Chinese administration have written it into law that you have to turn over any data that they demand. Communications in China, on Chinese apps: not safe. Censored, and insecure. Algorithms and human staffers search for touchy subjects, and wipe out any record of topics that the Chinese state does not like. You, as a poster, may get a visit from the secret police not-so-politely threatening you to stop.
So force TikTok's international business and ByteDance to separate. They were heading that way anyway. TikTok, with an ex-Disney CEO, says it already stores all U.S. data in the United States, with backup in Singapore. All that data is outside China, not subject to Chinese law, and out of the spying eyes of the Communist Party. TikTok says it never removes material because it is sensitive to China. Make sure that is true. You do not need to force a sale. This push into Microsoft's arms shoves away from the Communist Party, but right into the clammy hands of Big Tech.
If the U.S. president is worried about these kind of prospects, he simply has to order that all U.S. data is stored on U.S. shores, and firewalled. Then police it. Do your job.
TikTok says it will fight this order, and I smell a long legal battle - that TikTok will win. It has actually drawn on the same Constitutional language I mentioned earlier. "We are shocked by the recent Executive Order, which was issued without any due process," the company responded on Friday.
It tried to negotiate with Trump and the government for almost a year on a solution to their concerns. "What we encountered instead was that the Administration paid no attention to facts, dictated terms of an agreement without going through standard legal processes, and tried to insert itself into negotiations between private businesses."
This executive order "sets a dangerous precedent for the concept of free expression and open markets," the company says, and risks undermining the trust of global businesses in U.S. rule of law.
That's true. And where is this level of concern over the use or abuse of data with U.S. tech companies? U.S. tech companies that sell their facial recognition and Artificial Intelligence data to foreign companies and governments?
Microsoft itself invested, via its M12 Ventures private-equity arm, in the Israeli facial-recognition company AnyVision. When it was revealed in public that this technology was being used by the Israeli government to surveil people movements in the West Bank, Microsoft was forced to sell its shares.
Not surprisingly, Hong Kong shares took it on the chin on Friday. The Hang Seng index ended the day down 1.6%, the sharpest losses in Asia. That left them down 0.3% for the week, their fourth week in a row of declines. The largest listing, Tencent, saw its shares lose 5.0%, having traded down more than 10% during the day.
China, bizarrely, is championing free trade on Friday. The United States is using "national security as an excuse and using state power to oppress non-American businesses. That's just a hegemonic practice. China is firmly opposed to that," Beijing's foreign ministry spokesman Wang Wenbin said on Friday.
China bans most foreign tech companies from operating in China at all. It changes the rules of operation in China overnight to suit the Communist Party. So it's on no grounds to speak. But for once - and I guess they wouldn't censor me for saying it - in this instance they may have a point.
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