ByteDance – Eyes and ears.

ByteDance tries to avoid harsh treatment.

• The Chinese government clamp-down on the technology industry is continuing as the CCP now owns a 1% holding in ByteDance giving it a board seat from which it will be well-positioned to ensure that ByteDance does not do anything that it does not like.
• Tianyancha records (Chinese corporate database) show that ByteDance has sold a 1% stake to WangTouZhngWen Beijing Technology which is co-owned by three state entities.
• While the state has no direct holding in TikTok, it has eyes and ears in the boardroom of the company that controls it, meaning that the CCP has full visibility of the goings-on at TikTok.
• Hawks will now increasingly claim that this means that the CCP will have access to the data of hundreds of millions of non-Chinese users outside of China.
• This is a claim that ByteDance will almost certainly vigorously dispute, citing that TikTok servers are outside of China, but I think that this does not amount to very much.
• Given what the Chinese government has done to Ant Group, the for-profit education sector, and technology sector valuations in general, ByteDance will have no illusions of what its fate will be if it fails to comply.
• Hence, I suspect that it will comply with whatever regulations or demands that its 1% shareholder places upon it.
• This is what I suspect lies behind the share sale despite the fact that the transaction occurred before the government really got into gear with its clampdown.
• This is because it has been very clear for many months that the CCP is unhappy with the way the technology sector has been conducting its business and that it needed to be reminded who is really in charge in China.
• If there ever was any misunderstanding about this fact, this has now been well and truly dispelled along with a large portion of the value attributed to the Chinese technology sector by the public markets.
• This is where the problems of this approach begin to show themselves because history has shown time and again that government intervention in private industry has a large and negative impact on the productivity and innovation of that industry.
• RFM Research and Alavan Independent’s research clearly points to a long and bitter rivalry between China and the USA and the winner is likely to be the one that ends up with better technology.
• This is why China’s actions against its own technology sector may prove to be counterproductive in the long run, as it is handing an advantage to the US.
• A good example is access to capital where the US has been trying for some time to cut Chinese access to US capital to slow its growth.
• China’s recent actions have done more to achieve this goal in 2 months than the US has achieved in 2 years and restricting access to capital will slow the pace of China’s technological development.
• ByteDance may think that it has dodged a bullet and saved its IPO by letting the CCP have greater access to its inner workings, but it may just have opened the door for foreign rivals to come and replace it outside of China as is happening in India.
• With ever more draconian measures likely to come, China is unintentionally tipping the balance in favour of its rival.
• This damages its very real chances of supremacy in some of the up-and-coming technologies where RFM has identified the real technology war will be fought.