Why China's options in response to a TikTok ban are limited

Chinese officials decried the lack of “fairness” in the US last week following the swift passage of a House bill that called for Chinese company ByteDance to divest its popular social media app TikTok.

A foreign ministry spokesperson for China accused the US of using national security as a guise to “willfully suppress other countries' superior companies,” strongly hinting that the Chinese government would block any forced sale of its most popular social media app.

But beyond preventing a spin-off, Chinese options for potential retaliation against the US remain limited, given the country’s current economic standing and its own policy of censorship, experts say.

“The more that they take sort of retaliatory measures, that actually turbocharges that decoupling agenda that some have in Washington,” said Martin Chorzempa, senior fellow at The Peterson Institute for International Economics. “ would encourage firms to pull out of China because they wouldn't feel safe there.”

China weighs its options with TikTok

The latest congressional action marks another twist in a yearslong effort to limit the scale and influence of a social media app that has grown to more than 170 million users in the US.

Since launching in 2017 as the international version of parent company ByteDance’s popular Chinese app Douyin, TikTok has become one of the most downloaded apps globally, along with Meta’s (META) Instagram.

But the vast amounts of data collected on the platform, as well as concerns about the Chinese Communist Party’s ability to exert control over ByteDance, has raised the alarm for US lawmakers who have deemed TikTok’s ties to China a national security risk.

In congressional testimony, TikTok CEO Shou Zi Chew has insisted that the company stores Americans' data in Virginia and Singapore, not China. However, the company later acknowledged there are some exceptions for creator data, as Forbes reported.

“The Chinese government does have broad legal authorities to compel corporations in matters of national security,” said Colin Costello, a CFIUS and national security adviser at the Freshfields law firm. “So from the perspective of someone who views the Chinese government as an adversary and as a very capable adversary, the question is not has it been used, but can it be used? And the answer to that, ... from the perspective of the people who wrote this bill, is yes.”

This isn't the first time Beijing has responded to threats of a US TikTok ban.

In 2020, after former President Donald Trump signed an executive order effectively calling for the ban of TikTok and WeChat in the US, ByteDance immediately moved to update its export control rules. The changes restricted the export of “technology based on data analysis for personalized information recommendation service.”

Reva Goujon, director at Rhodium Group, expects Beijing to intervene similarly if the Senate passes the House bill and President Joe Biden signs it into law to “demonstrate its own resistance to the US.”

But China’s own economic reality and a broad slowdown in foreign investments may also influence Beijing’s calculation in the scale of its response. Foreign direct investments in China fell to a 30-year low in 2023, weighed down in part by concerns over geopolitical tensions and an unpredictable business environment.

“Beijing needs to weigh the risk of further alienating foreign investors when China’s economic challenges are already on full display,” Goujon said. “More defensive moves, whether on export controls, data security, or cybersecurity measures, will only drive companies deeper down the diversification path.”

That hasn’t stopped Beijing from responding in the past. Major American social media and online platforms, including Alphabet’s Google (GOOG), Meta’s Facebook, and Snapchat (SNAP), have already been banned from the world’s second-largest economy.

The government also barred critical domestic infrastructure operators from purchasing Micron’s (MU) products last year, after Washington implemented export controls on key American components and chipmaking tools. Months later, China ordered employees at central government agencies to stop using Apple’s (AAPL) iPhones, citing national security concerns.

If passed in the Senate, the TikTok bill sets a six-month deadline for TikTok to divest from ByteDance, a challenging scenario given the complexity of separating US assets from a global app.

Chorzempa said Beijing is unlikely to approve any deal, regardless of the price tag or corporate structure, in part because of what TikTok represents: a global social media success story made in China.

“If Beijing is looking at a ban in the United States market compared to losing global control , it's not clear to me that it would prefer divestment and a payout for the existing shareholders over the loss of that channel,” Chorzempa said.

In part, he added, that's because the “abundance of Chinese actions in the last few years makes clear that the interests of shareholders and the financial interests of shareholders just do not come in very high on the list of Chinese government priorities.”