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President Trump is scheduled to meet with advisors Thursday to review a proposal that would enable TikTok, the wildly popular Chinese-owned short video app, to continue operating in the United States by entering into a “trusted technology partnership” with Oracle Corp., the world’s second-largest software maker.
The proposed partnership, floated over the weekend, had seemed an ingenious solution for extricating the app, which counts more than 100 million American users, from a high-stakes standoff between Washington and Beijing.
Trump initially hinted his support for the idea. But late Wednesday, he signaled a TikTok backtrack.
“Just conceptually, I can tell you I don’t like that,” Trump said after a reporter told him that under the proposed deal, TikTok’s owner, Beijing-based ByteDance, would retain majority ownership of the venture, with Oracle taking only a minority stake.
“I’m not prepared to sign off on anything,” Trump said.
The Wall Street Journal reported Wednesday that a group of Trump officials led by Treasury Secretary Steven Mnuchin, and in consultation with unnamed U.S. investors, is pushing an alternative plan that might involve selling substantial stakes in TikTok to Oracle and Walmart Inc., then taking the company public to assure U.S. ownership exceeds 50%.
TikTok’s future has dangled in the breach since last month when Trump, citing national security concerns, vowed to ban the app in the U.S. market unless ByteDance sold TikTok to American owners and surrendered the “Made in China” algorithms that makes the app so popular. Trump’s edict provoked a public outcry in China. Beijing made clear to ByteDance founder Zhang Yiming that it opposes a forced sale. On Aug. 28, the Chinese government expanded the nation’s commercial code to include new restrictions on the export of artificial intelligence.
Oracle’s original solution to TikTok’s predicament, crafted with help from the venture’s American investors, called for transferring TikTok U.S. users’ data to cloud servers run by Oracle. The Redwood City, California-based software giant would vouch for the privacy TikTok user data and guarantee that it remained inaccessible to Chinese authorities. The plan envisioned Oracle as a minority shareholder, thus mollifying Beijing.
It helped, too, that Oracle founder Larry Ellison has been a high-profile fund-raiser for Trump, and that Oracle CEO Safra Catz served on Trump’s transition team. In a speech in Arizona on Tuesday, Trump praised Ellison and said a deal was close. “He’s been, really, a terrific guy for a long time,” Trump said. “So we’re going to take a look.”
Trump trade adviser Peter Navarro, a vocal proponent of banning TikTok instead of orchestrating its sale, has refrained from criticizing the Oracle proposal.
But then Wednesday, even as the Committee on Foreign Investment in the United States, the interagency panel that vets deals for national security concerns, reviewed the proposal, support seemed to unravel. Six Republican senators urged Trump to reject the proposal. Sen. Marco Rubio (R–Fla.) said he had “serious questions” about Oracle’s role and how much control the arrangement would give the American company over the app’s algorithms.
“We remain opposed to any deal that would allow China-based or controlled entities to retain, control or modify the code or algorithms that operate any U.S.-based version of TikTok,” Rubio wrote in a letter to the administration.
Sen. Ted Cruz (R–Texas) separately argued that the Oracle deal “failed to meet the intent of the president’s executive orders” and “raises serious national security concerns.” Bloomberg reports that Secretary of State Mike Pompeo also opposes the deal.
It’s hard to imagine that the Mnuchin alternative, as described by the Journal, will find favor in Beijing. Nor has China’s leadership demonstrated much sympathy for Zhang’s dilemma. This week, while TikTok and its investors scrambled to convince policymakers in Washington that TikTok is an independent subsidiary and would refuse to surrender data or manipulate its algorithms if ordered to do so by the Chinese government, China’s state-controlled press stepped up calls to strengthen Communist Party control of the nation’s growing private sector.
Guidelines issued by the General Office of the party’s Central Committee on Tuesday urged the United Front, an umbrella organization aimed at influencing party control, to “strengthen ideological guidance” and “create a core group of private sector leaders who can be relied on during critical times.”
In this week’s Eastworld Spotlight conversation, Gavekal Research technology analyst Dan Wang argues that, in the face of U.S. moves against TikTok, Huawei Technologies, and other provocations, Beijing has demonstrated remarkable restraint and seems keen to avoid being dragged into a downward spiral of tit-for-tat retaliation before the U.S. presidential election in November. The reason, he contends, is that Chinese leaders recognize there are few U.S. corporations in China that Beijing could target without hurting the Chinese economy.
More Eastworld news below.
Clay Chandler
clay.chandler@fortune.com
This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com.
Eastworld news
A chippy day for Huawei
Huawei’s day of reckoning has arrived. On Tuesday, the U.S.’s new restrictions on Huawei went into effect, reducing the Chinese tech giant's access to semiconductors by cutting off its access to more foreign suppliers that use U.S. technology. As of Thursday, the Chinese news outlet Caixin reported that U.S. authorities had not approved any chipmaker to continue supplying Huawei with chips, and some Japanese and South Korean suppliers have already begun looking elsewhere for new customers. In China, prices for Huawei phones are surging as consumers fear the company will soon lose the ability to produce new smartphones. Reuters
Mongolian crackdown
In early September, protests erupted in the northern Chinese province of Inner Mongolia in opposition to a new Chinese policy to reduce the amount of Mongolian-language instruction given to the province’s ethnic Mongolian students. Students walked out of classes, parents kept their children from schools, and demonstrators even clashed with police. Within days, the Chinese government moved to halt the unrest, deploying riot police, arresting hundreds of demonstrators, and forcing parents to sign pledges to return their kids to schools or face punishment. NPR
Suga and spice
On Monday, Yoshihide Suga was formally elected Japan’s first new prime minister in eight years, following former Prime Minister Shinzo Abe’s abrupt resignation due to health reasons. Suga, the son of a strawberry picker turned one of Asia’s most powerful figures, has signaled he will maintain Abe’s core vision for Japan, keeping most of Abe’s cabinet in place and retaining strong relations with the U.S. “What the people want is a quick end to the coronavirus pandemic and an economic recovery,” Suga said at his first press conference as prime minister on Wednesday. “That’s what my cabinet will put every effort into first and foremost.” Wall Street Journal
Global vaccine race turns Chinese
China is not only leading the global vaccine race, but it is now shaping it in its own image. This week, the United Arab Emirates approved Sinopharm’s vaccine candidate for emergency use, making the Chinese vaccine maker the first company to receive approval from a foreign government to distribute its candidate. The move also marked the first country outside of China and Russia to employ a controversial emergency-use vaccination program. China has used the scheme to inoculate hundreds of thousands of frontline medical workers and select population groups before completing phase III clinical trials. Fortune
A common foe
Australia and India increasingly have something in common—strained relations with Beijing. In recent months, tensions with China have pushed both powers to reduce their reliance on Asia’s largest economy, and India and Australia are finding more common ground in cooperating on areas like trade, education, and health care. This year, for example, the number of Indian student visa holders eclipsed that of Chinese visas in Australia for the first time. In early September, India, Australia, and Japan also signed a supply chain resilience agreement aimed at countering China’s dominance in regional trade. Bloomberg
Coronavirus by country
Indonesia
Indonesia's health minister called it a blessing from god that Indonesia didn't report a single coronavirus case until March 2, even as the virus rampaged across Asia in February. The lack of cases was more likely related to a lack of testing, and now the country is recording new daily case highs, averaging a record 3,000 new cases per day in the last week. It has roughly 230,000 cases total. In response to the pandemic, Indonesia’s government has avoided nation-wide lockdowns, instead relying "large-scale social restrictions," which have closed public areas, cut off some travel between regions, and limited public transport. But as cases continue to rise, the country’s hopes are now squarely focused on finding a vaccine. The country has become one of the world’s largest COVID-19 vaccine testing grounds, and Indonesia is hoping to leverage the position for early access to tens of millions of doses of a vaccine by early 2021. Bloomberg
Markets and movers
Nvidia – Softbank, the Japanese conglomerate, is selling the British chipmaker ARM to American tech giant Nvidia for as much as $40 billion. But the deal may now face roadblocks in China, where the government is wary of ARM’s critical chipmaking technology falling into American hands. Fortune
Alibaba – The Chinese e-commerce giant is in talks to invest $3 billion into Grab, the Singapore-based ride-hailing company with operations across Southeast Asia. The potential deal may provide the Alibaba-owned Lazada, a Southeast Asian e-commerce startup, with a wider network of potential customers. Deal Street Asia
SMIC – U.S. chipmakers are lobbying the Trump administration not to blacklist SMIC, the Chinese chipmaker, arguing that a SMIC ban would be detrimental to American companies in SMIC’s supply chain. The White House has been considering implementing restrictions on SMIC since at least early September. Reuters
Flipkart – The Indian e-commerce giant may list overseas in 2021 at a value of up to $50 billion, sources told Reuters on Wednesday. The company is likely to choose between Singapore, where it is incorporated, and the U.S., home to majority stake-owner Walmart, for its potential IPO. Reuters
Burger King China – TAB Food Investments, which runs 1,200 Burger King franchises in China, is weighing a sale of its 50% stake in its Burger King China operations. A potential deal may be worth up to $1.2 billion. Bloomberg
Final figure
0.5%
Chinese retail is finally back, growing 0.5% last month in comparison to the same period in 2019. August’s numbers mark the first year-on-year growth in China’s retail industry since the beginning of the pandemic. Over the last few months, retail has lagged behind other economic indicators like manufacturing and investments, signaling that consumers have been wary to return to pre-pandemic spending levels even as the threat of COVID-19 has waned in China. Fortune
