China Throws a Wrench Into Trump’s Plan to Force TikTok Sale

(Bloomberg) — Zhang Yiming’s plan to sell the U.S. operations of his short-video app TikTok to avoid a shutdown was thrown into jeopardy after China asserted its authority over a deal already under scrutiny by the Trump administration.

Beijing on Friday injected more uncertainty into already thorny negotiations over the sale of ByteDance Ltd.’s prized asset, claiming the ability to block a sale to foreign suitors Microsoft Corp. or Oracle Corp. with tighter restrictions on artificial intelligence exports. The commerce ministry added speech and text recognition and personalized recommendations to a list of products that require approval before they’re sold abroad.

These new areas cover the very technologies ByteDance employed to make TikTok a viral teen sensation from America to India. ByteDance is now required to seek the government’s sign-off on any deal, though it doesn’t mean an outright ban, according to a person familiar with the matter. TikTok is dissecting the new regulations and thinks they will make securing a deal trickier by requiring twin U.S.-Chinese approvals, a second person familiar with the matter said.

“AI is a foundational technology and is one of the key sectors that China aims to lead, competing with the U.S.,” said Rebecca Fannin, founder of Silicon Dragon Ventures. “This pushback by Beijing could be seen as part of the growing U.S.-China tensions and tech cold war.”

China’s opaque regulatory mechanisms introduce more unknowns into an already delicate process involving multiple corporations, agencies and federal court, all converging days before Donald Trump’s executive order banning TikTok takes effect in the run-up to November elections. It could take up to 30 days for ByteDance to get the greenlight to export AI, said Zhaokang Jiang, a trade attorney and managing partner of GSC Potomac.

Read more: ByteDance Said to Need China Nod for TikTok Sale Under New Rules

The involvement of Beijing, which has previously denounced Trump administration bans on TikTok and Tencent Holdings Ltd.’s WeChat, muddies the waters as American corporations and investors vie to hammer out a deal by the Trump administration’s deadline. Microsoft and Oracle have submitted rival bids to acquire TikTok’s U.S. business, while Centricus Asset Management Ltd. and Triller Inc. made a last-minute pitch on Friday to buy TikTok’s operations in several countries for $20 billion, according to a person familiar with the matter.

“We’ve been seeing U.S. restrictions on China on a daily basis. We can’t expect China to have no response at all,” said Wang Huiyao, an adviser to China’s cabinet and founder of the Center for China and Globalization.

Beijing’s new curbs on technology mirrors American sanctions against the sale of U.S. software or circuitry to a plethora of Chinese firms. Apart from giving it a say in any imminent deal, the seemingly innocuous changes emphasize the country’s political and technological ambitions and mints another bargaining chip in the U.S.-China tech cold war.

“Beijing’s responses to Washington over the past five months have largely been designed to appear retaliatory, but are in fact carefully calibrated to place Beijing on equal footing with the U.S. while not escalating tensions — yet,” said Kendra Schaefer, head of digital research at consultancy Trivium in Beijing. “This move is no exception: it may give Beijing more equal footing so that decisions can’t be made by the U.S. unilaterally, but doesn’t necessarily indicate Beijing will move to nix the deal.”

ByteDance, whose TikTok was once best-known for being a repository of lip-synching music videos, has become one of several Chinese companies at the heart of Washington-Beijing tensions.

Trump accuses ByteDance’s most successful international app of being a threat to national security, with echoes of the charges made against telecom giant Huawei Technologies Co. The White House has now ordered Zhang’s company to sell the app’s operations in the U.S. and several other countries, with a valuation estimated at $20 billion to $50 billion.

Read more: Centricus’ 11th-Hour Bid Adds Intrigue to TikTok Waiting Game

It’s unclear how the bidding process will play out. Zhang has said the company, whose TikTok is also banned in India, is working rapidly to resolve its geopolitical headaches. But Beijing’s insertion into the process raises the chances that it may just decide to veto or at least delay a deal, with unknown ramifications.