Even if the Trump administration clears the proposed deal between Oracle and ByteDance, Chinese authorities will still have to approve it
Granting Oracle access to TikTok’s source code may constitute a cross-border technology transfer under China’s new tech export rules, one expert says
US President Donald Trump will have to make a decision on a
between Oracle and TikTok-owner ByteDance soon, but Chinese authorities still have a say, ByteDance confirmed to multiple Chinese state media outlets on Thursday.
“An outright sale of operations and technology is not included in the proposal [to the Trump administration] and a final deal has not been signed,” the Beijing-based company said in a statement, according to the Chinese media outlets. “In accordance with the laws, the final deal will need approval from relevant authorities in China and the US.”
The Ministry of Commerce will take the lead in reviewing the deal in China and will consult other departments, according to a government source.
Trump has ordered ByteDance to divest its US operations, citing concerns that American user data could be passed to China’s Communist Party government. He has threatened to ban TikTok in the United States
if a deal is not reached.
that the US President pushed for under an executive order last month, the proposed deal would make Oracle a “trusted technology provider” by taking over management of TikTok’s user data in the US, according to a Reuters report.
This arrangement has been widely seen as a way around China’s recently
, which give it the authority to review cross-border deals involving the transfer of local technology overseas.
However, experts the
spoke to said the deal still leaves room for China to intervene.
Under the proposal, Oracle and TikTok will form a new US entity which will be called TikTok Global, according to Treasury Secretary Steven Mnuchin.
Terms of the proposed deal would give Oracle full access to TikTok’s source code and updates to make sure there are no back doors used by the company’s Chinese parent to access data from the video-sharing app’s 100 million American users, Bloomberg reported on Friday, citing people familiar with the matter.
If the technologies under any cross-border transaction are considered “technologies restricted from exportation” and their transfer is conducted through trade, investment or economic and technical cooperation, the Chinese company involved will need to apply for an export licence from the related authorities, said Shuli Ye, a partner at Beijing DHH Law Firm.
“If Oracle was granted access to TikTok‘s source code in the current deal, then TikTok needs to consider whether or not the access would lead to a transfer of technology restricted from exportation,” Ye said.
Several Chinese authorities may be involved in reviewing the deal, experts said.
“In general, such cross-border transaction arrangements, which involve a Chinese company setting up a new venture overseas, will need to go through the ‘outbound direct investment’ requirements,” Ye said.
Ye, who specialises in mergers and acquisitions, explained that the requirements will either involve filing the transaction records or seeking approvals from both the National Development and Reform Commission and the Ministry of Commerce in China.
Whether ByteDance will only need to file details of the transaction or have to obtain approval depends on the details of the partnership, especially the technologies that will be transferred, Ye said.
According to a 2014 regulation issued by the Ministry of Commerce, if an enterprise’s outbound investment involves sensitive countries, regions or industries – involving products and technologies with export restrictions – it will need to be inspected and approved. Otherwise, the parties only need to file details of the deal with authorities.
If the deal involves the transfer of money back into China, ByteDance may need to report this to the State Administration of Foreign Exchange, according to two lawyer sources with expertise in cross-border mergers and acquisitions. Both lawyers declined to be named as they said details of the deal were not clear enough.
ByteDance may also need to go through an anti-monopoly review to determine if TikTok Global will stifle competition in China, according to Mei Xinyu, a researcher at the Ministry of Commerce.
Aside from TikTok’s Chinese sister app Douyin,
and Xigua Video are also major players in China’s lucrative short video industry, which was worth
(US$14.1 billion) last year, according to Qianzhan Industry Research Institute.
“Anti-monopoly reviews have a cross-border effect,” said one of the lawyers who declined to be named. “Many companies involved in large cross-border acquisitions need to file an anti-monopoly review to multiple countries. The company will need to divest its interest in countries that do not approve the deal.”
When Google acquired Motorola in 2011, it took more than seven months for it to complete an anti-monopoly review on whether the deal would influence the competitive environment in China. This was approved only after Google agreed to additional conditions by the Ministry of Commerce, such as committing to treating original equipment manufacturers in a non-discriminatory manner on the Android platform.
Given that TikTok’s sale was not voluntary, Chinese authorities will still keep the option to reject it on the table, Mei said.
“If the partnership is not forced by the US government but the company volunteered, the government may ease up the review,” the researcher said. “But based on the current situation the review won’t be limited only to the [transfer of] technology.”