U. S. demands TikTok's Chinese owners to sell their stakes or face ban

People familiar with the matter stated that the U. S. told the owners of the video-sharing app to sell their shares or risk having the app banned in the U.S.

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The discussion is being led by the Treasury Department through the Committee on Foreign Investments in the U. S. (Cfius). They made the demand to TikTok's owner ByteDance Ltd. recently, the people stated. They requested not to be identified in private discussions.

Bloomberg reported Tuesday that TikTok's leadership had been discussing the possibility to separate from ByteDance Ltd. its Chinese parent, in order to address national security concerns. One person suggested that TikTok's owners might retain some form ownership, but through a passive structure.

"If national security is the goal, divestment won't solve it: a change of ownership would not impose any additional restrictions on data flows and access," Maureen Shanahan, TikTok spokeswoman, stated in a statement."The transparent, U. S.-based security of U. S. user information and systems with robust third-party verification, vetting and monitoring is the best way to address national security concerns. This is what we are already implementing."

Cfius is currently conducting a national security review of the company. Last year, it agreed to make a few changes in Project Texas. The proposal calls for the American technology giant Oracle Corp. being brought in to host U. S. user information and review its software. It also proposes to appoint a three-person oversight board approved by the government. Many of these moves are already in place.

Although the Cfius request doesn't stop that review, it offers a possibility for a way forward after the administration stated that it wasn't convinced that any agreement in discussion was sufficient to address security concerns.

It is unclear how Beijing would react to TikTok's forced sale. TikTok, which is the world's most valuable startup with a valuation of $220billion, is considered one of China’s most prominent companies abroad. However, the government has stated that it will scrutinize any deal for data or algorithms that could be transferred to foreign hands.

According to another person familiar, the administration was not convinced by TikTok’s proposal to add layers to oversight and separate from ByteDance. TikTok has invested $1.5 billion in Project Texas, but details have been met with suspicion on Capitol Hill.

This is a significant escalation of the U. S. relationship to China at a moment when the two countries are already fighting over issues such as Taiwan's fate and export controls for microchips. It also marks China's strengthening partnership in Russia.

The U. S. National Security Council, the Departments of Treasury and Justice did not immediately respond to requests for comment. The Wall Street Journal reported on Wednesday the Biden administration's request.

U. S. officials have been raising long-standing national security concerns regarding TikTok. Christopher Wray, the FBI Director, told lawmakers that China could use the app to access millions of users' data and software. The recommendation algorithm -- which determines what videos users will see next -- could also be used by the government to influence operations.

Wray stated that Chinese law requires Chinese companies to essentially do -- and I'm going for shorthand here -- basically do anything the Chinese government asks them to do in terms sharing information or serving to be a tool of their government."That's enough reason to be extremely worried."

Shou Chew, TikTok's chief executive officer, has been asked to testify in front of a House committee next Wednesday about the app's privacy and security practices and the company's relationship to the Chinese Communist Party.

According to people familiar with the matter, a divestiture, which could lead to a sale or initial public offer, is considered a last resort and should only be pursued if the existing proposal with national security officials is not approved.