Asia Pacific

U.S. opens national security investigation into China-owned TikTok

Reuters

The U.S. government has launched a national security review of TikTok owner Beijing ByteDance Technology Co.’s $1 billion acquisition of the U.S. social media app Musical.ly, according to three people familiar with the matter.

The acquisition was completed two years ago but U.S. lawmakers have been calling in recent weeks for a national security probe into TikTok. They are concerned that the Chinese company may be censoring politically sensitive content and are raising questions about how it stores personal data.

TikTok has been growing more popular among U.S. teenagers at a time of growing tensions between Washington and Beijing over trade and technology transfers. About 60 percent of TikTok’s 26.5 million monthly active users in the United States are between the ages of 16 and 24, the company said this year.

The Committee on Foreign Investment in the United States (CFIUS), which reviews deals by foreign acquirers for potential national security risks, has started to review the Musical.ly deal, the sources said. TikTok did not seek clearance from CFIUS when it acquired Musical.ly, they added, which gives the U.S. security panel scope to investigate it now.

CFIUS is in talks with TikTok about measures it could take to avoid divesting the Musical.ly assets it acquired, the sources said. Details of those talks, referred to by CFIUS as mitigation, could not be learned. The specific concerns that CFIUS has could also not be learned.

A week ago, Senate Minority Leader Chuck Schumer and Sen. Tom Cotton asked for a national security probe in a letter to Joseph Macguire, acting director of national intelligence. They said they were concerned about the video-sharing platform’s collection of user data and whether China censors content seen by U.S. users. They also suggested TikTok could be targeted by foreign influence campaigns.

TikTok allows users to create and share short videos with special effects. The company has said U.S. user data is stored in the United States, but the senators noted that ByteDance is governed by Chinese laws.

TikTok also says China does not have jurisdiction over content of the app, which does not operate in China and is not influenced by any foreign government.

Last month, Musical.ly founder Alex Zhu, who heads the TikTok team, started to report directly to ByteDance CEO Zhang Yiming, one of the sources said. He previously reported to Zhang Nan, the head of ByteDance’s Douyin, a Chinese short video app. It was not clear whether this move, which separates TikTok organizationally from ByteDance’s other holdings, was related to the company’s discussions with CFIUS over mitigation.

In October, Sen. Marco Rubio asked CFIUS to review ByteDance’s acquisition of Musical.ly. He cited questions about why TikTok had “only had a few videos of the Hong Kong protests that have been dominating international headlines for months.”

The United States has been increasingly scrutinizing app developers over the personal data they handle, especially if some of it involves U.S. military or intelligence personnel.

The Chinese gaming company Beijing Kunlun Tech said in May it would seek to sell its popular gay dating app Grindr after CFIUS approached it with national security concerns.

Last year, CFIUS forced China’s Ant Financial to scrap plans to buy MoneyGram International Inc over concerns about the safety of data that could identify U.S. citizens.

The panel also compelled Oceanwide Holdings and Genworth Financial to work through a U.S. third-party data administrator to ensure the Chinese company could not access the insurer’s U.S. customers’ personal private data.

ByteDance is one of China’s fastest growing startups. It owns the country’s leading news aggregator, Jinri Toutiao, as well as TikTok, which has attracted celebrities like Ariana Grande and Katy Perry.

ByteDance counts the Japanese technology giant SoftBank, the venture firm Sequoia Capital and big private-equity firms such as KKR, General Atlantic and Hillhouse Capital Group as backers.

Analysts have called ByteDance a strong threat to other Chinese tech industry firms, including social media and gaming giant Tencent Holdings and search engine leader Baidu. Globally, ByteDance’s apps have 1.5 billion monthly active users and 700 million daily active users, the company said in July.

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