More details emerge on the TikTok deal in China

Comparing Shen Yi's account with those offered by U.S. officials.

Shen Yi at Shanghai’s Fudan University today shared a piece with what he said were “exclusive” details on the impending China-U.S. deal on Twitter from “authoritative” sources.

Given Shen’s long-standing ties with the Cyberspace Administration of China, a key regulatory authority whose deputy head was in Madrid during the China-U.S. talks, and the granularity of his account, it’s entirely plausible that the technicalities offered by the influencer are reliable.

Photo by Solen Feyissa on Unsplash

Notwithstanding his framing and commentaries, the key facts he disclosed are as follows.

1. First, it is important to distinguish between “TikTok US Data Security Company” and “Byte TikTok US Company.”
In recent years, TikTok US launched a Texas-based project to safeguard the data of U.S. users. Under this project, TikTok’s U.S. data security operations have been exclusively handled by TikTok US Data Security Company (“USDS”), a wholly owned subsidiary of TikTok US. Meanwhile, other U.S. subsidiaries of ByteDance operate the remaining TikTok U.S. businesses.

To comply with relevant laws and also to address certain legitimate U.S. concerns regarding data security, content assurance, and software review, under U.S.–China negotiations, once the framework agreement is approved and signed, USDS will be transformed into a joint venture in the U.S.. External investors will be introduced, and they will hold the majority of shares and board seats, while ByteDance will retain its position as the single largest shareholder. The USDS joint venture will be entrusted and authorized to manage U.S. user data storage and security, content safety assurance, software review and approval for release, as well as related local operations in the United States.

At the same time, ByteDance will continue, through its U.S. subsidiary “Byte TikTok US Company,” to operate business and other related activities (such as e-commerce, advertising for brands, and cross-border commercial activities). It is important to stress that “Byte TikTok US Company” remains 100% owned by ByteDance through its global TikTok subsidiary—this arrangement has not changed.

ByteDance will continue to own the intellectual property rights (IPR), and will license relevant IPR to USDS, collecting licensing fees from the U.S. entity.

2. The algorithm remains the property of ByteDance, only licensed to USDS for use.
This point was in fact explicitly clarified by a relevant official of China’s Cyberspace Administration at the press conference following the Madrid talks:

中美双方就充分尊重企业意愿和市场规律、通过TikTok美国用户数据和内容安全业务委托运营、算法等知识产权的使用权授权等方式解决TikTok问题，达成了基本共识。

The two sides reached a basic consensus on resolving the TikTok issue by fully respecting corporate will and market rules, entrusting U.S. operations with TikTok’s U.S. user data and content security businesses, and licensing the right to use IPR, including the algorithm.

This statement already makes it very clear:

1. In the first part, regarding USDS’s data and content security operations, the relationship is one of “entrusted operation.”

2. In the second part, regarding the algorithm, three key terms are involved: “IPR” “righ to use,” and “licensing.” The Chinese official was almost explicitly signaling that the intellectual property rights of the TikTok algorithm belong to ByteDance, and that USDS will obtain the “right to use” through a “licensing.”

At the same time, the process of “licensing” is ultimately subject to the decision of the Chinese side, meaning it must undergo approval by the Ministry of Commerce of China.

The Ministry of Commerce also made a statement on May 20th: The Chinese government respects the will of enterprises and welcomes companies to conduct commercial negotiations on the basis of market rules, in order to reach solutions that comply with Chinese laws and regulations and achieve a balance of interests.

It is evident that whether an arrangement complies with Chinese laws and regulations, and whether it reflects a balance of interests, are the primary criteria for the Ministry of Commerce in authorization. In line with the Chinese government’s principle of “administration in accordance with the law,” the Ministry of Commerce will review the “licensing of the TikTok algorithm pursuant to relevant laws and regulations, including the 《中国禁止出口限制出口技术目录》Catalogue of Technologies Prohibited and Restricted from Export of China.

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After reaching the TikTok deal, Beijing and Washington are now selling it to their respective domestic audience, each highlighting the part of the deal that it can characterize as a win.

Shen’s details are not in conflict with the widely-reported account given by Karoline Leavitt, the White House Press Secretary, who emphasized “a new board with six American directors out of seven.”

That Shen mentioned, in passing, “External investors will be introduced, and they will hold the majority of shares and board seats,” while omitting the details that six of the seven board seats will be held by Americans, and that American companies will own around 80 percent of the American version of the app, is a case in point.

Similarly, the White House has avoided details that more hawkish voices like Rush Doshi could employ to describe the deal as “a complete surrender”. More below.

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Throughout the TikTok drama, two issues are most fundamental to suspicious minds in the U.S.: data and algorithm.

The suspicion about data is basically that the Chinese government will access and then take advantage of U.S. user data. Say, what captivates a U.S. politician? Where does he or she go after dinner (if he or she permits the TikTok app to access his or her location), etc?

Shen says

The USDS joint venture will be entrusted and authorized to manage U.S. user data storage and security.

Senior White House officials told The New York Times

The software giant Oracle will oversee the security of Americans’ data

The U.S.-run TikTok will work to retrain the copy on users’ data in the United States, and China will not have access to the data

The suspicion about algorithm is basically whether the Chinese government decides whether pro-Netanyahu or genocide-condemnation videos appear more often in TikTok

Shen says

The two sides reached a basic consensus on resolving the TikTok issue by fully respecting corporate will and market rules, entrusting U.S. operations with TikTok’s U.S. user data and content security businesses, and licensing the right to use IPR, including the algorithm.

…regarding the algorithm, three key terms are involved: “IPR” “righ to use,” and “licensing.” The Chinese official was almost explicitly signaling that the intellectual property rights of the TikTok algorithm belong to ByteDance, and that USDS will obtain the “right to use” through a “licensing.”

The New York Times reported

A copy of the algorithm, the recommendation engine that powers the app’s addictive feed of short videos, will be licensed from China to an American investor group that will oversee the app in the United States, the official said.

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For suspicious minds in the U.S., such as Rush Doshi, the algorithm is perhaps more important than data in this case.

His key concern is whether “the US will let Beijing determine what appears on the news feeds of 180 million US TikTok users.”

Aside from the fact that there is no public evidence that Beijing has ever meddled in TikTok’s algorithm [but let me say the suspicion, although not substantiated by publicly available evidence so far, is not entirely unwarranted given the sad realities of the world we are living in today], the key is what the licensing agreement will allow.

To put it another way, whether the U.S.-controlled entity - in Shen’s account, the TikTok US Data Security Company (“USDS”) - will be able to operate (adjust/change/edit/manipulate?) the algorithm independently after licensing it from ByteDance?

One will have to look at the licensing agreement if it becomes publicly available, but I guess that the answer is yes, partly because Beijing was not and is not interested in meddling with the algorithm. [That’s my personal opinion, and different people hold different opinions.]

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Finally, an interesting anecdote first highlighted by Ken Klippenstein in February 2025

This week at the Munich Security Conference, Sen. Mark Warner, the top Democrat on the intelligence committee, played “I’ve got a secret.” It’s a game national security officialdom loves to play, slyly claiming authority ‘if they could only tell you what they know.’

It is in that vein that Warner spilled the beans on what he called the “real story” behind the law that could still ban TikTok.

“I want to see if you're going to tell the real story,” a grinning Warner said, addressing former congressman Mike Gallagher, and now a Palantir executive who, along with Warner, first introduced the bill that claimed that TikTok was a national security threat, a claim still relevant given the app’s uncertain future.

Gallagher described how the national security bill was dead until Hamas’ attack on Israel, which brought the legislation back to life. As Gallagher said:

“So we had a bipartisan consensus. We had the executive branch, but the bill was still dead until October 7th. And people started to see a bunch of anti-Semitic content on the platform and our bill had legs again.”

I am your Chinese spy. Show me your cat.