TikTok Owner ByteDance to Spend Billions in Singapore After U.S. Ban

TikTok is the most downloaded app of 2020, as quarantines have spurred more and more users to hop onboard and learn about the latest dance trends and memes. But the app also faces a slew of regulatory hurdles, privacy concerns, and allegations of censorship, issues experts say will be new CEO Kevin Mayer’s top priority.

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Jul.07 -- President Donald Trump says he is considering banning TikTok in the U.S. over threats to national security as tensions continue to rise with China. Bloomberg’s Selina Wang reports on “Bloomberg Markets: China Open.”

https://www.bloomberg.com/news/videos/2020-09-11/tiktok-owner-to-spend-billions-in-singapore-video >

• ByteDance looks to add hundreds of jobs in the nation: people
• Chinese company wants Singapore to be base for rest of Asia

ByteDance Ltd., the Chinese owner of video-sharing app TikTok, is planning to make Singapore its beachhead for the rest of Asia as part of its global expansion, according to people familiar with the matter.

The Beijing-based company is looking to spend several billion dollars and add hundreds of jobs over the next three years in the city-state, where it has applied for a license to operate a digital bank, said the people, who asked not to be identified because of confidentiality.

The investment would come at a crucial time as the technology firm is forced to sell TikTok operations in the U.S. under pressure by the Trump administration.

ByteDance, the world’s most richly valued startup, is plowing ahead with plans to take its social media services deeper into Asia after setbacks in India and the U.K. as well as the U.S.

The internet phenomenon controlled by billionaire Zhang Yiming has long eyed Southeast Asia’s 650 million increasingly smartphone-savvy population, a region where Alibaba Group Holding Ltd. and Tencent Holdings Ltd. are also making inroads.

Read how TikTok becomes part of U.S.-China flashpoints

The plans for Singapore include establishment of a data center, the people said. Its operations there include TikTok and Lark, an enterprise software business.

ByteDance currently has more than 200 job openings in Singapore, for positions in everything from payments to e-commerce and data privacy, according to its job referral site.

The company already has 400 employees working on technology, sales and marketing in the city-state, one of the people said.

A ByteDance representative offered no comment.

Shopping Spree

Southeast Asia's e-commerce is on track to top $150 billion in 2025

2015 $:5.5B 2019: $38.2B 2025: $153B

Source: Google & Temasek / Bain, e-Conomy SEA 2019

Gross merchandise value

Southeast Asia is rapidly evolving into a critical location for China’s largest tech corporations from Alibaba to Tencent in the face of growing hostility from the U.S. and other major developed markets. Singapore is becoming a regional base for both Western and Chinese companies because of its developed financial and legal system, and as Beijing tightens its grip on Hong Kong.

“Singapore is highly attractive to tech firms looking for a hub to address the Southeast Asian markets due to geographic proximity,” said Bloomberg Intelligence analyst Vey-Sern Ling.

“The workforce is highly educated, tech savvy and multilingual.”

In China, ByteDance also runs news aggregation app Toutiao, and TikTok’s Chinese twin Douyin. Collectively its stable of products have more than 1.5 billion monthly active users.

ByteDance is said to have generated more than $3 billion of net profit on more than $17 billion of revenue in 2019.

U.S. Deadline

Asia is a growth area for the company, especially when it is increasingly likely to miss the U.S. government’s deadline for the sale of its TikTok U.S. operations. President Donald Trump said Thursday he won’t extend his Sept. 15 deadline for the deal.

In India, TikTok is among more than a hundred Chinese-made consumer apps that are banned by the government on concerns about security. SoftBank Group Corp. is exploring gathering a group of bidders for TikTok’s India assets.

The U.K. government will likely ban TikTok from moving local user data out of the country, Bloomberg News has reported.

Gateway

Singapore, in particular, offers ByteDance the opportunity to explore an area it’s had relatively little exposure to. The company is leading a consortium that has applied for a digital-bank license from the Monetary Authority of Singapore. Other members of that group includes a private investment firm owned by a member of the Lee family that founded Oversea-Chinese Banking Corp.

The regulator will award as many as five such permits to non-banks by December. Ant Group and Tencent-backed Sea Ltd. have also applied. The city-state offers a potential gateway to the rest of Southeast Asia, where the digital lending market may reach $110 billion by 2025, according to a report by Bain & Co., Google and Temasek Holdings Pte.

(Updates with details from penultimate paragraph)

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As the US shocked the free world with its mafia-style forced sale of Chinese-owned short-form video platform TikTok, Chinese experts said that US extortion and looting have left a deep impression on the minds of the nations of the world, and pointed out that many of the countries are already striving to boost self-reliance in terms of security, industrial independence and technological ownership.

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Controversial: Trump has said he would approve TikTok’s sale to Microsoft only if the US government gets a cut from the deal. — Reuters

TikTok's roller-coaster ride in the United States continued on Monday as President Donald Trump said he would approve the video-sharing app's sale to Microsoft only if the US government gets a cut, a condition that one expert called a "mafia" deal.

The president also gave Microsoft and TikTok's Chinese owner, ByteDance, a deadline of Sept 15 to complete the deal, or the app will be banned in the US.

Foreign Ministry spokesman Wang Wenbin said at a regular media briefing in Beijing on Tuesday that the US treatment of TikTok is "outright bullying", and the US only uses a "national security risk" as an excuse to suppress Chinese tech enterprises.

"The relevant enterprises carry out business activities in the US following market principles and international rules and abiding by local laws and regulations," he said. "However, the US has set restrictions and suppressed them with unwarranted charges, which is political manipulation."

Wang said that if the wrongdoing by the US continues, then any country could take similar measures against any American enterprise on the grounds of national security.

"The US side must not open this Pandora's box, otherwise it will suffer its consequences," he said.

The increased scrutiny of TikTok culminated on Friday when Trump threatened to ban the app from operating in the US due to a "national security risk". The negotiations between the two companies were then halted.

But after a weekend phone call with Microsoft CEO Satya Nadella, Trump reversed his stance and reportedly gave the two companies 45 days to close the deal. This was confirmed by Microsoft on Sunday, which said in a statement it "will move quickly to pursue discussions" with ByteDance and complete the talks "no later than" Sept 15.

The president added a condition to the potential purchase on Monday: Microsoft should buy TikTok outright, and the US Treasury Department should be paid because the government made the deal possible.

"It's a little bit like the landlord/tenant; without a lease the tenant has nothing, so they pay what's called 'key money', or they pay something," Trump told reporters in the Cabinet Room at the White House on Monday. "But the United States should be reimbursed or should be paid a substantial amount of money, because, without the United States, they don't have anything."

Investors in privately owned Byte-Dance valued TikTok at $50 billion, according to a Reuters report.

Kai-Fu Lee, former chairman of Google China, said the US treatment of TikTok, including "forced acquisition, plus only 45 days, plus finder's fees", is "incredible".

Lee said that China has set clear rules for internet companies that want to operate in the country, and Google had decided to exit as it didn't want to comply with Chinese laws and regulations.

"The US didn't give any parameters that TikTok could work with, and didn't provide any evidence for their claims that TikTok had caused national security risks to the US," he said.

The legal basis of Trump's requirement that some of the money from the deal go to the US Treasury was immediately questioned by experts.

"This is quite unusual; this is out of the norm," Gene Kimmelman, a former chief counsel for the US Department of Justice's Antitrust Division, told CNN.

"It's actually quite hard to understand what the president is actually talking about here.... It's not unheard of for transactions to have broader geopolitical implications between countries, but it's quite remarkable to think about some kind of money being on the table in connection with a transaction," said Kimmelman, a senior adviser to the policy group Public Knowledge.

Julian Sanchez, a senior fellow at the Cato Institute, a think tank based in Washington, D.C., said Trump's "extortion threat" is a "mafia business model".

"Trump's full explanation of why the Treasury should get a 'cut' of a Microsoft/TikTok deal is, somehow, even more grotesque and shameless than I had anticipated," said Sanchez.

"As with his tariff policy, there doesn't seem to be any consideration of whether this sets a dangerous precedent for other countries to engage in similar pretextual protectionism against us, or how whimsically compelling divestment might affect international investment," he said.

Samm Sacks, a senior fellow at Yale Law School's Paul Tsai China Center, also warned that shutting down the app altogether would set "a dangerous precedent in which the US government can blacklist companies based on country of origin using blanket national security as justification".

The Trump administration has been scrutinizing TikTok for several months, claiming that the platform shares the data of US users with the Chinese government. The company has repeatedly denied the accusations, maintaining that all the users' information is stored in the US.

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A Senate subcommittee hearing on Tuesday focused on discussions about the significant risks that short-form social video app TikTok could pose to US national security and citizens' privacy.

The accusations about TikTok are based on the assumption that its parent company ByteDance may hand over personal information of the app's US users to the Chinese government, thus posing huge risks to users and the country. In addition, there are also claims that TikTok censors content. TikTok denies both charges.

TikTok runs its business according to US law, so how can it threaten US national security? Many people believe that the US is using this as an excuse to crack down on this globally successful Chinese social media app. To date, all popular social media platforms have been created by US companies, but TikTok is an exception. It challenges their monopoly and some American elites are uncomfortable about it.

Over the past 12 months, TikTok's app has been downloaded more than 750 million times, compared with 715 million for Facebook, 450 million for Instagram and 300 million for YouTube. Its success has even worried Facebook CEO Mark Zuckerberg and now Facebook is developing a short video sharing application that mimics TikTok.

It's not a good trait for the US to suppress competitors of American companies by political means. Washington has taken extreme measures against Huawei, such as cutting off the supply of some components, a move that cracks down on competitors at the expense of hurting domestic companies. There are signs that TikTok is the next target. What the US is doing is driven by extreme protectionism and runs counter to a free market economy.

Washington elites should think about that. US-developed social networking sites are popular around the world. Any country can use the same concerns US lawmakers have about TikTok to target Facebook, Twitter and Instagram. Without any evidence, if every country conjured up risks to challenge those companies, would the world ever be able to share common applications? If such national security principles were to be promoted globally, US internet giants would suffer the most.

The US internet market is becoming solidified. Americans are supposed to welcome competition from TikTok. China's internet market has changed tremendously in recent years with JD challenging the dominance of Baidu, Alibaba and Tencent, followed by the rise of strong players such as TikTok and PDD, which boost the dynamics of the Chinese internet market. The US shouldn't suppress competition and encourage idleness.

Despite being the strongest country in the world, the US often accuses others of being national security risks. It uses political means to safeguard its existing interests when its technology falls short. But this approach will affect how Americans view modern competition and how American society participates in international competition. In the long run, some American companies may use dishonest practices, not better technology and innovation, in the international marketplace.

The US should carefully study the TikTok phenomenon and learn from it. TikTok has its own algorithm, but it pays close attention to abiding by laws and customs of the countries where it is carrying out business activities. When in Rome, do as the Romans do - this is a universal rule for business activities. All US social media giants have the opportunity to enter the Chinese market if they follow that rule.

We hope the US won't go to extremes. Being open is where US interests lie. Even if they have worries about TikTok, they must exercise restraint. Many people are worried that the US might monitor them through various means every day, but they are restrained and rational. The US has no reason not to do likewise.

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• Chinese authorities will soon allow so-called VIEs to list

The 35-year-old founder of Bytedance Ltd. is worth about $13 billion, according to the Bloomberg Billionaires Index, making him China’s 9th-richest person and one of the fastest in modern times to amass a mega-fortune.

The business, founded in 2012, has more than 1 billion active monthly users across eight mobile apps, including a news aggregator powered by artificial intelligence and a video-sharing platform.

Zhang is the youngest self-made billionaire in Asia on the Bloomberg index, which tracks the world’s 500 richest people. His rapid wealth accumulation is a sign that China hasn’t lost its knack for creating mega-rich company founders despite a slowing economy.

His rapid wealth accumulation -- he’s now the world’s 98th-richest person -- is a sign that China hasn’t lost its knack for creating mega-rich company founders despite a slowing economy. It also helps explain why authorities seem to be taking a more tolerant stance toward a corporate structure favored by the country’s technology tycoons, most of whom have chosen to list their businesses overseas.

Zhang’s fortune is harder to calculate than the founders of Baidu Inc. and Tencent Holdings Ltd. in part because his company isn’t yet public. It’s also difficult because Bytedance is structured in the same way as the two tech behemoths -- a complicated ownership system known as a variable interest entity (VIE).

Of the 44 Chinese tycoons on Bloomberg’s wealth index, eight are tech moguls with VIEs listed outside China. The billionaires’ combined net worth exceeded $150 billion as of March 21, and their stakes weren’t publicly known until the companies filed with regulators ahead of going public in New York or Hong Kong.

VIEs have never been formally endorsed by the Chinese government. But in an acknowledgment of their importance, officials will soon permit VIEs to go public in the country, allowing them to list on a new technology-focused exchange set to launch in coming months.

Complex Structure

Bytedance is, for now, a closely held VIE with a complex structure that involves layers of holding companies.

Its main business, Jinri Toutiao, is ultimately owned by Zhang and Bytedance Senior Vice President Zhang Lidong through a Beijing-registered holding firm, according to China’s National Enterprise Credit Information Publicity System.

Zhang pledged his 98.8 percent stake to another Beijing company, which in turn is owned by a Hong Kong-registered firm. That entity, where Zhang is a director, is owned by a company registered in the Cayman Islands. The principals won’t be disclosed unless there’s an IPO prospectus.

The Bloomberg Billionaires Index calculated Zhang’s net worth by pegging his stake at 65 percent and using the company’s valuation of $20 billion, a figure provided in 2017 by people with knowledge of the matter. The analysis assumes his stake has been diluted through funding rounds.

Bytedance is said to have secured a $75 billion valuation in late 2018, making it the world’s most valuable startup -- though the figure isn’t used in the net worth calculation because the details haven’t been confirmed.

Yin Ai, a Bytedance spokeswoman, declined to comment on Zhang’s wealth or the ownership structure.

Zhang uses a VIE because Chinese regulations limit foreign investment across more than 30 sectors including the internet, telecommunications and education. The VIE structure -- which allows offshore companies to control domestic Chinese businesses through contractual agreements -- circumvents the rules and allows, for example, Baidu’s holding company to be based offshore (and list in the U.S.) while still being a dominant force in China.

Internet giant Sina Corp. pioneered the VIE model so that it could transfer income from onshore operating businesses to an offshore holding company, an arrangement that meant the Cayman Islands entity could list on the Nasdaq Stock Market in 2000.

There are risks to the structure for foreign investors, said Donald Clarke, a specialist in Chinese law at George Washington University.

“A contract entered into for an unlawful purpose is invalid under Chinese law,” he said. “Any time the government wants to pull the plug, it can.”

Still, that hasn’t stopped more than 100 companies using VIEs in offshore IPOs, according to research by Zhou Fang, a Beijing-based partner at law firm JunHe LLP, who predicts that more companies will follow.

That growth helps explain why authorities are slowly embracing VIEs. Earlier this month, China enacted a foreign-investment law that allayed investor concerns about the future of such companies, while unicorn VIEs will be able to list on the new exchange in Shanghai, known as the Tech Board.

“To some extent, it shows the government easing concerns over VIEs -- but they still care about who’s the ultimate controller of the company,” said Zhang Biwang, a partner at Allbright Law Offices. As long as the controller of the company remains a Chinese citizen, “the government won’t shut their eyes and ignore reality to make the companies give up VIEs.”

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