The renewed effort in Congress to force Chinese-owned ByteDance to divest from TikTok has sparked questions over how the two foreign companies are structured.
Opponents of the divestiture legislation (H.R.7521) — sponsored by Rep. Mike Gallagher (R-WI) — are pushing two talking points regarding TikTok and ByteDance’s corporate governance. The first is that both TikTok and ByteDance are incorporated in the Cayman Islands and are thus not Chinese companies nor subject to the Communist state’s 2017 National Intelligence Law. The second talking point is that ByteDance, TikTok’s parent company, only has 20 percent ownership by Chinese founders and investors, while employees own an additional 20 percent, and global investors make up 60 percent of the ownership.
On paper, both points appear to ring true to the casual observer; the nature of China’s regulatory and socio-political structures obfuscates the extent to which ByteDance and, in conjunction, TikTok are controlled by the Chinese Communist Party (CCP) and military.
Cayman Islands Company?
TikTok and its parent company, ByteDance, are technically incorporated in the Cayman Islands. Considered one of the top tax havens for multinational companies, there are more corporations ‘located’ in the Caribbean island nation than there are people. But just because TikTok and ByteDance are incorporated there doesn’t mean they’re Cayman Islands companies.
ByteDance is headquartered in Beijing, China — the capital and socio-political center of the communist state. TikTok, meanwhile, is headquartered in Singapore and Los Angeles, California. Students of history may remember that Singapore’s political and economic elite is comprised primarily of individuals who claim Chinese national origin — with the two Asian nations maintaining close economic relations.
Over the past several years, Chinese investment has accounted for up to 10 percent of Singapore’s GDP. Additionally, Singapore regularly stands accused of “Singapore Washing” Chinese firms. TikTok, in fact, only moved its headquarters from Beijing to Singapore after concerns were raised about the company’s connections to the Chinese military and CCP.
The divestiture legislation sponsored by Rep. Gallagher doesn’t use a company’s physical incorporated address as the basis for defining where that company is from. Instead, it asks the U.S. government to consider and provide evidence that a foreign or multinational company is controlled by an ‘adversary’ of the U.S. Currently, the recognized ‘foreign adversaries’ of the U.S. are North Korea, the Islamic Republic of Iran, China, and Russia. The question of control is critical and brings us to the next talking point deployed by TikTok’s allies in Congress.
Only 20 Percent Chinese Owned?
Opponents of forcing ByteDance to divest from Tiktok — or face a U.S. ban — have taken to repeating a relatively new CCP talking point claiming ByteDance is only 20 percent Chinese-owned. The first reference to the ownership breakdown appears to have run in POLITICO in March 2023 — just as ByteDance ramped up lobbying efforts on Capitol Hill to head off a potential ban on TikTok.
According to the article, the ownership of TikTok’s parent company comprises 20 percent Chinese founders and investors, 20 percent employees, and 60 percent foreign global investors. This claim is misleading. ByteDance’s operations are almost entirely located in China, meaning its employees are predominantly Chinese nationals — putting Chinese ownership closer to 40 percent than 20 percent. Additionally, among its global investors are ethnic Chinese who reside as citizens in foreign countries like Singapore — but who carry out the interests of the CCP.
Sen. Rand Paul (R-KY) — an opponent of Rep. Gallagher’s legislation — has repeatedly made the “only 20 percent Chinese ownership” claim. Earlier this week, he got into a heated exchange on Fox and Friends while repeating the claim. Even Wikipedia now reflects the 20 percent claim, with the “Corporate Structure” section for ByteDance’s entry updated in August of 2023 — again coinciding with ByteDance’s increased lobbying operations on Capitol Hill.
ByteDance IS Chinese-Owned.
Despite claims made by Sen. Rand Paul and Rep. Thomas Massie (R-KY) — both of whom receive significant campaign support from U.S. billionaire Jeff Yass, who is heavily invested in TikTok — the social media company and its Chinese parent company ByteDance are Chinese-owned. ByteDance was founded by Chinese nationals Zhang Yiming and Liang Rubo. Zhang still serves as the company’s chairman, and Liang as its CEO.
Even more disturbing is that — like most Chinese-based corporations — ByteDance has its own internal Chinese Communist Party committee. This body represents the interests of the Chinese state within the company and represents the true center of ByteDance’s corporate governance.
In 2021, a collection of Chinese state-owned entities acquired a percentage stake in ByteDance’s Beijing subsidiary in the form of “golden shares,” which gave Communist Party officials three board seats with absolute veto power. One of the three entities was the Cyberspace Administration of China — which serves as the CCP’s internet regulator.
Chinese regulatory law has been used to obfuscate the extent to which the CCP directly controls ByteDance — as is the case with many Chinese-based companies deemed critical to CCP interests. One of the CCP-appointed board members is Wu Shugang, a party official with an extensive background in state propaganda.
Additionally, ByteDance is believed to have extensive ties to Chinese military intelligence. Despite the company’s claims, it does appear to be subject to China’s 2017 National Intelligence Law. The law requires companies incorporated or operating in China to hand over data and other information to the CCP’s Ministry of State Security (MSS) and Ministry of Public Security (MPS).
Ending Chinese Control.
The corporate structure and governance of both ByteDance and TikTok is precisely what Rep. Gallagher’s legislation is meant to address. Rather than simply banning the TikTok social media app in the U.S., Gallagher aims to separate the app company from its Chinese ownership — where national security concerns arise.
Allowing a popular social media app that collects massive amounts of data on American citizens to operate in the U.S. with almost no regulatory scrutiny is a severe problem. Attempts to prevent U.S. data from being accessed by ByteDance have thus far failed. This leaves the U.S. government with one avenue forward: force ByteDance to end its control over TikTok or ban the social media app outright.
