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China Govt Says TikTok Needs 'Licence' to Sell Its Famed Algorithm to America; New Trade War Begins?

The logo of the much-controversial TikTok app is seen on a smartphone, against the backdrop of the national flag of the United States of America. (Image: Reuters)

The logo of the much-controversial TikTok app is seen on a smartphone, against the backdrop of the national flag of the United States of America. (Image: Reuters)

TikTok parent Bytedance has now been instructed that it needs a specific licence from the ruling Chinese Communist Party, if it wants to sell its app and the underlying technology to an American company.

TikTok has possibly had more troubles than any other app in recent memory. One of China’s biggest technology exports to the world in terms of apps and software, TikTok has been riddled with privacy controversies in notable international markets such as India and USA. Now, after reaching close to sale agreements with American technology firms Microsoft or Oracle, TikTok and its parent company Bytedance face a fresh hurdle – this time back in its home turf. The restriction comes in the form of new export rules put in place overnight by China’s ruling Communist Party. The move is being seen by experts as a direct response to USA’s Donald Trump government’s muscle flexing against China.

According to a New York Times report, China has imposed new export control rules, which now covers “technology based on data analysis for personalised information recommendation services.” In other words, Bytedance can still sell the app per se, but will not be able to sell the famous content recommendation algorithms that made TikTok a viral sensation. These algorithms break down a user’s video viewing habits into granular details, categorises them into content genres, and then proceeds to recommend more videos that are similar to a user’s liking. More than the app itself, data analysis and machine learning driven algorithms are the centrepiece of any social media app today, and the same holds true for TikTok as well.

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With the new restriction in place, it would seem that making an outright sale for TikTok has gotten exponentially difficult for Bytedance. Without the key recommendation algorithms in place, Bytedance would effectively be looking to sell the licence for only the brand of TikTok to interested companies, which in turn may reduce the overall valuation of the app. The Chinese government’s move is being seen as a direct response to what experts and industry analysts had referred to as an act akin to bullying, by US president Donald Trump. In many ways, taking the all important algorithms under government restriction is meant to send out a strong message to America – an act that almost feels like a fresh wave of trade war between the two nations.

While the Trump government has set a September 15 deadline for TikTok to either be sold or be banned in USA, its largest foreign market at the moment, the export restriction may stall any potential buyout transaction that may have been in process. TikTok has so far denied all allegations of having privacy loopholes and ties to the China government, and has also recently sued the US government for what it claims is unfair treatment given to it by America. TikTok, since June 29, has also been banned in India, which was its largest foreign market before the ban was enforced. As of today, the app remains banned in the country.

In the two weeks remaining until September 15, it will be interesting to see whether once-invested parties such as Microsoft still remain interested in a deal for TikTok. The viral video app is one of China’s biggest technology success stories, scaling up at drastic pace to reach close to 700 million monthly active users as of August 2020. Beyond the Facebook group of apps, Bytedance’s TikTok is the largest social media platform in the world, hence underlining its position in this critical industry.