Exclusive: China's ByteDance moves to ringfence its TikTok app amid U.S.
probe - sources
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[November 27, 2019]
By Echo Wang, Alexandra Alper and Yingzhi Yang
NEW YORK/WASHINGTON/BEIJING (Reuters) -
ByteDance has stepped up efforts to separate its social media app TikTok
from much of its Chinese operations, amid a U.S. national security
panel's inquiry into the safety of the personal data it handles, people
familiar with the matter said.
The Chinese technology company is seeking to provide assurances to the
Committee on Foreign Investment in the United States (CFIUS) that
personal data held by TikTok, which is widely popular with U.S.
teenagers, is stored securely in the United States and will not be
compromised by Chinese authorities, the sources said.
CFIUS, which reviews deals by foreign acquirers for potential national
security risks, is looking into ByteDance's $1 billion acquisition of
social media app Musical.ly in 2017, which laid the foundations for
TikTok's rapid growth, Reuters reported earlier this month.
ByteDance's response represents a key test of corporate China's ability
to operate businesses in the United States that handle personal data, as
U.S. President Donald Trump's trade war with China fans suspicion
between the world's two largest economies.
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ByteDance is hoping to avoid the fate of Chinese gaming company Beijing
Kunlun Tech Co Ltd <300418.SZ>, which said in May it would agree to a
CFIUS request to divest popular gay dating app Grindr following concerns
about the security of personal data. It is also exploring exiting its
investment in Grindr through an initial public offering.
ByteDance started to separate TikTok operationally before CFIUS
approached it in October, because it wanted some of its staff to focus
on TikTok, according to the sources.
It completed the separation of TikTok's product and business
development, marketing and legal teams from those of its Chinese social
media app Douyin in the third quarter of this year, according to the
sources, who requested anonymity to discuss the company's internal
arrangements.
During the summer, it also hired an external consultant to carry out
audits on the integrity of the personal data it stores, the sources
added. The company has said U.S. user data is stored entirely in the
United States, with a backup in Singapore. It has also said that the
Chinese government does not have any jurisdiction over TikTok content.
Following the approach by CFIUS, TikTok is making a new push to set up a
team in Mountain View, California, that will oversee data management,
according to the sources. This team will determine whether Chinese-based
engineers should have access to TikTok's database, and monitor their
activity, the sources said.
TikTok is also hiring more U.S. engineers to reduce its reliance on
staff in China, according to the sources.
It is not clear how effective these changes will be in appeasing CFIUS.
A spokeswoman for the U.S. Treasury Department, which chairs CFIUS, said
it does not comment on information relating to specific CFIUS cases.
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![](../images/112719pics/news_n31.jpg)
The logo of the TikTok app is seen on a mobile phone screen in this
picture illustration taken February 21, 2019. Picture taken February
21, 2019. REUTERS/Danish Siddiqui/Illustration
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"Shifting a company's operations away from China, geographically and
technically, can give CFIUS more comfort that the company is really
independent of its Chinese owner and the Chinese government," said
Nevena Simidjiyska, a partner at law firm Fox Rothschild LLP who
advises companies on CFIUS reviews and is not involved in the TikTok
case.
U.S. CONCERNS
TikTok employs about 400 people in the United States, up from 20
people at the time of the Musical.ly acquisition, the sources said.
Most of the new employees joined this year, as TikTok built its U.S.
operations, the sources added. ByteDance has 50,000 employees around
the world.
U.S. lawmakers called last month for a national security probe into
TikTok, expressing concern that the Chinese company may be censoring
politically sensitive content, and raising questions about how it
stores personal data. Last week, U.S. Army Secretary Ryan McCarthy
said the U.S. military is undertaking a security assessment of
TikTok.
Facebook Inc <FB.O> CEO Mark Zuckerberg, whose social media platform
competes with TikTok for younger users, has also criticized the app
over censorship concerns.
The CFIUS probe is currently focused on the handling of personal
data, rather than censorship, according to two of the sources.
ByteDance views the CFIUS investigation as informal, and has not yet
been subjected to an official review, one of the sources added.
Some of the personal data that TikTok stores, such as a person's
name, age, email address and phone number, is submitted by its
users. Other information, related to a person's location, is
collected automatically, according to TikTok's website. TikTok also
stores user-generated content, such as photographs and videos.
Launched just two years ago, TikTok has been downloaded 1.5 billion
times, making it the third most downloaded non-gaming app of the
year, after Facebook's WhatsApp and Messenger apps, according to
research firm SensorTower.
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ByteDance is one of China's fastest growing startups. It owns the
country's leading news aggregator, Jinri Toutiao, as well as TikTok,
which has attracted celebrities like Ariana Grande and Katy Perry.
ByteDance counts Japanese technology giant SoftBank Group Corp
<9434.T>, venture capital firm Sequoia Capital, and private equity
firms such as KKR & Co Inc <KKR.N>, General Atlantic and Hillhouse
Capital Group as backers.
(Reporting by Echo Wang in New York, Alexandra Alper in Washington
and Yingzhi Yang in Beijing; Editing by Greg Roumeliotis and Lisa
Shumaker)
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