China secures favorable terms in TikTok deal

On September 25, US President Trump signed an executive order that will allow the TikTok deal hammered out in Madrid between US and Chinese negotiators to move forward.

The big takeaway: Based on multiple Chinese media reports, the deal very much tilts in Beijing’s favor.

Before the deal: ByteDance controlled two wholly-owned US entities: TikTok US and TikTok US Data Security (USDS).  

• The former runs TikTok’s US businesses, including managing the algorithm, while the latter hosts American user data.
• USDS was created in 2022 to ease Washington’s concerns over data security and privacy. 

Under the new deal:

• ByteDance still retains 100% of TikTok US – which owns the company’s US advertising and ecommerce business. 
• A new entity, TikTok USDS Joint Venture, will be created with majority US investor control. The joint venture will function much like the old USDS (hosting American user data), although with the added role of running the algorithm that TikTok US will license to it.
• TikTok US will also cede an (unspecified) portion of its profits to the JV.

The upshot: Very little changes for ByteDance, except losing some control (and profits) to USDS – a unit already under heavy US scrutiny.

Get smart: This is probably the best deal Beijing could hope for – and explains why China agreed to the deal in Madrid without appearing to ask for much in return.