The TikTok Deal Has Consequences that China Loves

It looks like China is ready to play Trump’s own game against the US. Last week President Trump blessed the TikTok deal with Oracle and, in the process, legitimized something that China has already forced on some US companies.

China has wanted to control the US companies that do business in China. They have already put in strict rules and forced Amazon to sell off its China cloud assets to a local entity to do business in China.

Now, the Chinese media is promoting the TikTok deal in the US as a restructuring model for what should be done globally.
Just as the US has forced the TikTok deal for security reasons, China is delighted that the Trump Administration has validated their actions.

It seems that the US has bumbled its way into a precedent the consequences of which it hasn’t anticipated.

The following quote appeared in the Chinese State-controlled media on Monday, Sept 21, 2020:

Hu Xian
China State Affiliate

“The US restructuring of TikTok stake and actual control should be used as a model and promoted globally. Google, Facebook shall all undergo such a restructure and be under control of local companies for security concerns.”

ByteDance, the parent company of TikTok, will own 80% of TikTok, and Oracle/Walmart will have a 20% stake in this ByteDance subsidiary. However, Oracle will manage all US content and be the gatekeeper to ensure China does not spy on US citizens.

The US has established an interesting precedent regarding TikTok. To operate here, it needs to have localized control and some partnership. Exactly what China wants, and the US has now blessed this business model.

Later On Monday, President Trump, who initially gave his approval, reversed his position and said for the deal for TikTok to go through, the US would have to own 100% of the deal.

And Hu Xian of the Chinese State-controlled media said that China, as of late Monday night, has not agreed to the proposed plan and is pushing for the deal that was on the table over the weekend.

“Hu Xijin, editor-in-chief of the China state-affiliated Global Times, tweeted that Beijing would likely reject the deal “because the agreement would endanger China’s national security, interests and dignity.”

This deal’s eventual outcome is in limbo at the moment, but there are three important things about this TikTok deal worth noting. One is the fact that the US is copying the way China structures deals. In that sense, the US has blessed China’s approach to global businesses that want to operate in a particular country.

The second is that President Trump has created a diplomatic nightmare and an economic one in which the US and China relations are bound to worsen. Both countries need to save face, and any backing down on each country’s position will mean compromises that show both can win. This is not that kind of a deal where I think both can come out with a winning hand.

Third, If Trump’s approach to validating the concept of local ownership of a company for it to operate in the US, what will keep Russia, Turkey, Iran, and even the EU for demanding similar deals and ownership in the name of National Security.

I have been against this precedent-setting move because of so many consequential unknowns that are just now surfacing and expect many more to come.

Published by

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

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