US Opens National Security Investigation Into China’s Bytedance

Beijing-based TikTok owner ByteDance Technology Co. is reportedly being investigated as a potential national security risk by the U.S. government, for the company’s US$1 billion acquisition of U.S. social media app Musical, according to Reuters’ report citing two people familiar with the matter.

The Committee on Foreign Investment in the United States (CFIUS), which reviews deals by foreign acquirers for potential national security risks, has opened an investigation. TikTok did not seek clearance from CFIUS when it acquired, which gives the U.S. security panel scope to investigate it now, said the sources.

CFIUS is in talks with TikTok about measures it could take to avoid divesting the assets it acquired, the sources added.

Bytedance acquired, which co-founded by current Bytedance executive Alex Zhu in 2014, in December 2017 for nearly US$1 billion. Bytedance then scrapped and moved its users to an updated version of its own short video platform TikTok in August 2018.

While the acquisition was completed two years ago, U.S. lawmakers have been calling in recent weeks for a national security probe into TikTok, concerned the Chinese company may be censoring politically sensitive content, and raising questions about how it stores personal data.

Last week, U.S. Senate Minority Leader Chuck Schumer and Senator Tom Cotton asked for a national security probe. They said they were concerned about the video-sharing platform’s collection of user data, and whether China censors content seen by U.S. users. They also suggested TikTok could be targeted by foreign influence campaigns.

“With over 110 million downloads in the U.S. alone, TikTok is a potential counterintelligence threat we cannot ignore,” Schumer and Cotton wrote to Joseph Macguire, acting director of national intelligence.

TikTok has been growing more popular among U.S. teenagers. About 60% of TikTok’s 26.5 million monthly active users in the United States are between the ages of 16 and 24, the company said this year. The company has come under increasing scrutiny for the growing tensions between the U.S. and China over trade and technology transfers.

TikTok said all the U.S. user data is stored in the U.S. with backups in Singapore, but the senators noted that ByteDance is governed by Chinese laws. “Our data centers are located entirely outside of China, and none of our data is subject to Chinese law,” the company said in a statement published last month.

“While we cannot comment on ongoing regulatory processes, TikTok has made clear that we have no higher priority than earning the trust of users and regulators in the US. Part of that effort includes working with Congress and we are committed to doing so,” TikTok told Reuters.

As China’s fastest growing startups, ByteDance owns Chinese news aggregator Jinri Toutiao, as well as a domestic version of TikTok known as Douyin. The company was backed by Japanese technology giant SoftBank, venture firm Sequoia Capital and private equity firms such as KKR, General Atlantic and Hillhouse Capital Group.

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