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China Signals Openness to TikTok Sale to U.S. Buyers: What’s at Stake?

Concerns over national security and data privacy have led the U.S. government to demand drastic changes to the app’s ownership structure. In April 2024, a U.S. law banning TikTok unless its parent company divested its American operations was signed into law, and it went into effect on Sunday after a Supreme Court ruling upheld its constitutionality. This resulted in TikTok going offline for 14 hours, a move that startled its 170 million American users. However, ByteDance restored the app’s service shortly after assurances from President-elect Donald Trump that a sale could keep the platform operational.

China’s Surprising Shift

The Chinese government’s initial stance was one of firm opposition to a forced sale of TikTok. Beijing’s Commerce Ministry previously stated it would “firmly oppose” any divestment of TikTok’s U.S. operations. However, in a surprising reversal, China’s Foreign Ministry recently indicated that such decisions should be left to companies, provided they comply with relevant laws. Mao Ning, a Foreign Ministry spokesperson, said, “For such actions as corporate operations and acquisitions, we always believe that they should be decided independently by companies based on market principles.” She added, “If Chinese companies are involved, they should comply with Chinese laws and regulations.”

This shift in tone suggests that China may be open to discussions that could preserve TikTok’s presence in the U.S., a move likely aimed at safeguarding Chinese interests while averting further tensions with the incoming Trump administration. Mao also emphasized that TikTok has been operating in the U.S. for years and is loved by its American users, stating, “We hope that the United States can listen carefully to rational voices and provide an open, fair, just, and non-discriminatory business environment.”

Elon Musk as a Key Player

Among potential buyers, Elon Musk stands out due to his significant business ties in China and his public opposition to banning TikTok. Musk’s relationship with TikTok’s founder, Zhang Yiming, could also play a critical role. Zhang, who holds a 21% stake in ByteDance and maintains majority control through extra voting rights, reportedly met with Musk last year after Congress began advancing the TikTok ban. According to sources, Musk and Zhang rekindled a connection initially established in 2014 when Zhang visited Tesla’s California office. At the time, Zhang reportedly called Musk his “hero” and compared him to Apple’s Steve Jobs, but with greater boldness and vision.

Musk’s deep ties to China could make him an attractive buyer from Beijing’s perspective. Tesla’s Shanghai Gigafactory is one of the company’s most productive plants, and China is Tesla’s second-largest market, generating $5.7 billion in revenue in the third quarter of 2024 alone. Musk’s connection to Chinese officials, including Vice President Han Zheng, whom he met over the weekend, further bolsters his candidacy as a buyer Beijing might trust.

Financial Scope and Other Buyers

Analysts estimate that TikTok’s U.S. operations could fetch between $40 billion and $50 billion, excluding its valuable recommendation algorithm. This hefty price tag has drawn interest from other potential buyers, including Kevin O’Leary, who has reportedly placed $20 billion “on the table” through a consortium. Other contenders include Perplexity AI, which proposed a merger, and even Amazon, which is TikTok’s third-largest advertiser. Rumble, a video-sharing platform, and former Activision Blizzard CEO Bobby Kotick have also floated interest in purchasing TikTok’s U.S. assets.

Despite the competition, Musk’s unique position as a trusted figure in China and a confidant of Trump could make him the frontrunner. Beijing may view selling to Musk as a way to maintain some influence over the app while resolving U.S. security concerns. As James Andrew Lewis of the Center for Strategic and International Studies speculated, “The Chinese probably are figuring out where it would fit into a larger deal with Trump, but I can’t see them giving it away for free.”

Even if Musk or another buyer emerges, significant challenges remain. Financing a deal of this magnitude could prove difficult, particularly for Musk, whose acquisition of X (formerly Twitter) strained his resources. While TikTok’s U.S. operations would be a lucrative addition to Musk’s portfolio, the $44 billion purchase of X left banks reluctant to back similar ventures. Moreover, public perception of Musk’s leadership could impact TikTok’s user base. Some users have expressed concerns about Musk’s potential ownership, fearing changes to the app’s algorithm or an increase in misinformation.

For ByteDance, the sale’s success hinges on whether China will allow the transfer of TikTok’s recommendation algorithm, which is widely considered its “secret sauce.” Without the algorithm, the app’s value could plummet, complicating any deal.

Strategic Implications for China and the U.S.

China’s willingness to consider a sale reflects broader strategic considerations. Selling TikTok to Musk or another trusted U.S. buyer could serve as leverage in negotiations with the Trump administration, particularly over trade tariffs. For Musk, acquiring TikTok would solidify his influence over social media and bolster his image as a defender of free speech, aligning with Trump’s promise to preserve TikTok for American users.

Trump, for his part, has proposed a 50-50 ownership split between U.S. and Chinese interests, signaling his intent to balance national security concerns with user demand. This compromise could allow TikTok to remain operational in the U.S. while fostering goodwill between the two nations.

China’s softened stance on TikTok’s sale marks a pivotal moment in the platform’s turbulent history. By signaling openness to a deal, Beijing has created an opportunity for a resolution that satisfies both U.S. security concerns and Chinese interests. Whether Elon Musk or another buyer steps in, the outcome of these negotiations could reshape the global tech landscape and set a precedent for future cross-border tech disputes.

FAM Editor: This could develop in strange ways. There are several other Chinese companies in the same boat, are they going to get bought at a premium because of this?  But the precedent has been set.

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