DAVOS, Switzerland, Jan. 19 (Reuters Breakingviews) – TikTok’s Shou Zi Chew is in a difficult position. The CEO of Chinese company ByteDance’s social media app is trying to convince US officials that it will protect American users’ data. But even if proposed fixes get past federal officials — not a sure thing — they still have to contend with activist state leaders. The company’s best defense is to provide some transparency through an IPO.
TikTok’s addictive short videos have made the app very popular among users and advertisers. They also attracted an inspection of their property. Although several American investors, including KKR and Tiger Global Management, have bought stakes in the unlisted company, ByteDance and its $300 billion founder Zhang Yiming are still major shareholders. ByteDance also allowed the Chinese government to take a special management stake in one of its Chinese subsidiaries in late 2019, Reuters reported in 2021. This is an increasingly common trait as the People’s Republic exercises more control over private tech companies.
This is problematic as trust between Chinese and American officials is at an all-time low. To make matters worse, ByteDance said late last year that some employees abusively accessed two journalists’ TikTok user data. While those employees have since been fired, American lawmakers, including Democratic and Republican congressmen, have been angered by the breach.
TikTok escaped an effective US ban when President Joe Biden reversed executive orders by his predecessor Donald Trump in 2021 that banned new downloads of the app. The company is now trying to work with the United States Committee on Foreign Investments to address concerns about Chinese access to American customer data. TikTok has proposed creating a department with a separate board that includes a former US security official while Oracle’s data is stored in Texas, Reuters reported last year, citing people familiar with the matter.
But even if TikTok can win over federal officials, state regulators can still get in the way. More than 40% of American states, including Wisconsin and Texas, have banned the app on state-owned devices.
A partial solution would be for TikTok to list its shares on a US exchange. That would force the company to be more transparent about its operations and financial performance, while also allowing American investors to take a direct stake in the company.
An IPO would not resolve the issue of Chinese government influence over TikTok’s parent company and could cause another headache: Ride-hailing app Didi Global was forced to delist from the US after China’s internet watchdog opened a security probe. TikTok may also want to wait for tech ratings to recover. But if an IPO helps TikTok keep going in the United States, it’s worth a try.
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CONTEXT NEWS
TikTok CEO Shou Zi Chew will attend the World Economic Forum in Davos, Switzerland on January 16-20.
Editing by Peter Thal Larsen and Amanda Gomez
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