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Chinese officials on Friday revised rules that govern the sale of certain kinds of technology to foreign buyers. The updated list includes data processing, speech and text recognition, according to government notices.
The announcement marked the first time those rules have been revised since 2008. China's Ministry of Commerce and Ministry of Science and Technology said the changes were meant to "formalize the management of technology export" and "protect national security."
The notices did not name TikTok or its Beijing-based owner ByteDance, but experts have pointed out that the rule change would require ByteDance to obtain government permission before it could sell TikTok to a foreign company.
State-run news agency Xinhua cited a trade expert over the weekend who said the revisions would cover a sale of TikTok. ByteDance said Sunday that it was aware of the new rules, and that it would "strictly comply" with them.
Talk of a sale began as US President Donald Trump issued an executive order this month threatening to ban the app unless ByteDance sells its US operations in the coming weeks. Trump and other US politicians have said the app poses a threat to national security. TikTok, though, has denied the allegation and sued the Trump administration over the order, calling it "heavily politicized.", said the edition.cnn.
The app already has a handful of prospective buyers, including Microsoft (MSFT) and Walmart (WMT), which have said they are participating in negotiations over a potential deal. The tech firm Oracle (ORCL) is reportedly interested as well.
Pressure on TikTok right now is immense. Last week, CEO Kevin Mayer resigned after less than four months on the job, citing the "sharply changed" political environment.
China's changes to its export control rules are a way for the country"to exert some leverage over the situation," according to Anupam Chander, a law professor at Georgetown University.
"It will cause any bidder to pause and wonder how to proceed," he added.
ByteDance says it will abide by tightened China export laws as TikTok sale looms
ByteDance said it will follow China’s newly amended rules on exporting technology — and that could make any sale of TikTok’s U.S. operations more complicated.
On Friday, China updated its list of technologies subject to export restrictions to include a number of areas from voice recognition to chip design.
The export list had not been updated since 2008. Companies wishing to export technologies on the list must obtain a license from the government, according to China’s Ministry of Commerce.
One of the items subject to restrictions are technologies for “recommendation of personalized information services based on data analysis,” according to a CNBC translation of the export list.
TikTok has often talked up its recommendation algorithm which presents users with videos based on a number of factors from previous things they have viewed to their geographical location.
After China came out with the updated export list, state-backed news agency Xinhua published an interview with Cui Fan, a professor at the China University of International Business and Economics and a government trade advisor, CNBC said.
He said that ByteDance will likely need to go through the licensing procedure. The article added that no matter who the new owner of TikTok is, ByteDance will likely need to transfer software code form China to overseas and may need to provide technical services too.
China Just Called Trump's Bluff on TikTok
AI and algorithms are TikTok’s secret sauce, and Beijing knows it
Is Trump being outplayed on TikTok?
Imagine a bidder wanting to buy KFC, but being told the deal might not include the Colonel’s 11 secret herbs and spices. That’s effectively what Beijing has told the list of U.S. companies keen to purchase short-video app TikTok: The key ingredients may be out of reach.
At first it looked like the Trump administration had it all figured out.
As much as critics — including U.S. senators and the secretary of state —express concern about the data TikTok collects, it’s really the algorithms that matter most to the company, and anyone who buys it. These are the magic formulae that tell the app which data points will predict future behavior, and keep you staring at the phone longer. If you linger on hip-hop videos and swipe past cooking tips, then chances are you’ll be seeing more lip-synced DJ Khalid and fewer turkey-stuffing recipes. Speech and text recognition allow TikTok to peer deeper into content to extract a better sense of what’s being said and written.
Facebook Inc., Snap Inc. and Alphabet Inc. are among those pouring billions of dollars into better predicting user behavior. This is the bread and butter of search-engine results and timeline feeds, helping them sell more-targeted ads at higher prices. Notice that Google tends to return better results than Bing, despite having access to the same pool of data (the entire internet!), and you get a sense of why algorithms matter, according to the bloomberg.
TikTok’s algos are gold. At least, that’s what bidders seem to think.
And it looks like Beijing agrees. Effectively, the Chinese government is saying, “You wanna buy TikTok? Go ahead, but that doesn’t mean you’ll get your hands on the secret sauce.”
This move puts the ball back in Donald Trump’s court. The U.S. president may need to contend with the real possibility that TikTok doesn’t find a buyer, and he’ll have to decide whether one of the nation’s most popular products should be removed from the app store of its most valuable company.
Trump may think that strong-arming China will boost his re-election chances, but being outplayed could backfire. It’s also possible that if TikTok ends up being banned altogether, there will be a backlash by the app’s fans.
With U.S.-China trade talks inching slowly forward, Beijing has found itself a bargaining chip. Whether or not Trump is found to be bluffing, both sides now think they have the stronger hand.
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