The creation of a US-controlled joint venture for TikTok mirrors the structure that Western companies historically had to adopt to enter China. This role reversal shows how geopolitical power dynamics are reshaping global tech and business regulations.
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Despite a law requiring TikTok's complete separation from its Chinese owner ByteDance, the approved deal maintains deep operational and financial ties. ByteDance retains a board seat and leases its core algorithm for royalties, effectively creating a superficial compliance that fails to address the law's original national security concerns.
Meta's $2.5B acquisition of Butterfly Effect shows a playbook for acquiring Chinese-origin tech. By relocating to a neutral country like Singapore, the company becomes palatable for US investment and acquisition, navigating geopolitical regulations and PR backlash, effectively getting "into the democracy bucket."
Despite a potential US ownership deal, TikTok remains a national security risk because the core algorithm will still be licensed from China. Control over the information flow to Americans is the real issue, not data storage location, making the deal a superficial fix.
The US government's demand for TikTok to store American user data on US servers is identical to the policy China has long required of foreign tech companies. This rule is why platforms like Facebook, which refused to comply, are unavailable in China.
The multi-year delay in TikTok's U.S. divestment wasn't just negotiation. It involved the complex technical and logistical challenge of creating a new U.S. entity, migrating data and algorithms to Oracle's oversight, and solving the difficult problem of how to manage content flow with the global version.
To address national security concerns, the plan for TikTok's U.S. entity involves not just data localization but retraining its content algorithm exclusively on U.S. user data. This novel approach aims to create a firewall against potential foreign manipulation of the content feed, going a step beyond simple data storage solutions.
While the joint venture with Oracle ensures US user data is stored locally, ByteDance retains ownership and control of TikTok's powerful recommendation algorithm. The Chinese parent company leases this critical "engine" to the US entity, maintaining operational influence.
The TikTok sale provides a blueprint for navigating geopolitical pressure. By selling its US operational assets ("chassis") to local investors but retaining control and licensing its core algorithm ("engine"), the parent company satisfies the text of the law while keeping its most valuable asset.
The deal's structure sets a precedent for how Western governments might regulate other Chinese companies that collect user data, such as e-commerce platforms (Temu, Shein) and automakers (BYD). It opens a "Pandora's box" for requiring data localization across industries.
Contrary to popular reports, the TikTok deal isn't a sale. It's a joint venture focused on U.S. user data security, with parent company ByteDance retaining a stake, board representation, and control over the core money-making operations and algorithm. TikTok is not under new ownership.
