TikTok CEO Grilled by US Lawmakers

Mar 25, 2023, 14:54pm2023/03/25 15:04:36 Lynn Lin

The United States Congress recently held a hearing on TikTok after a three-year hiatus, revisiting concerns over the app’s ownership by ByteDance and the possibility of separating it from the Chinese parent company or outright banning it in the US. During the hearing, TikTok CEO Shou Zi Chew was questioned by a congressman who commented, “I have to thank you. You have done something unimaginable in the past three or four years. You have united the Republican Party and the Democratic Party.”

In contrast to the previous two hearings held in 2019 and 2020, where TikTok did not send any representatives, the company chose to have Chew present for questioning at this latest hearing.

Prior to the hearing, a former employee of a US think tank and lobbying firm expressed concern to LatePost, stating that TikTok’s decision to appear for questioning was not a positive sign. Based on past experience, these types of hearings are often seen as political theater created by lawmakers to promote their own interests. The former employee noted, “TikTok could have refused to attend as they did the previous two times, but their decision to appear suggests that the company does not have a very optimistic outlook on the current situation.”

The prediction was proven correct during the hearing, which lasted for nearly five hours. Chew was only able to speak uninterrupted for about six minutes to present TikTok’s perspective. Throughout most of the hearing, he faced frequent interruptions and was often asked to provide a direct “yes or no” response before examiners offered their own conclusions.

Dell Cameron, a senior policy journalist for Wired magazine, expressed his view that the hearing highlighted issues with the US Congress: “Attempts by Chew, a 40-year-old former Goldman Sachs banker, to elaborate on TikTok’s business practices were frequently interrupted, and his requests to remark on matters supposedly of considerable interest to members of Congress were blocked and occasionally ignored. These opportunities to get the CEO on record, while under oath, were repeatedly blown in the name of expediency and for mostly theatrical reasons. Chew, in contrast, was the portrait of patience, even when he was being talked over. Even when some lawmakers began asking and, without pause, answering their own questions.”

Jeffrey Towson, the founder of TechMoat, an Asian digital strategy consultancy, shared his perspective with Pandaily. Similarly, he noted that during the hearing, Chew exhibited more restraint than Mark Zuckerberg had in his hearings. Towson believes that it is essential for TikTok to establish an image of an individual that can be trusted, and that Chew fits that profile.

It is unlikely that TikTok’s problems will be resolved by a single hearing.

Compared with three years ago, TikTok is now more deeply embedded within US society. The app has become increasingly popular, with at least nearly half of the US population, or 150 million people, using it every month, which is three times the number of users in 2020. According to LatePost, TikTok has over 80 million daily active users in the US, which is approximately half of Facebook’s user base, making it the largest social platform in the country after Facebook.

TikTok is facing significant challenges, and the situation has been made even more difficult by the involvement of the US President Joe Biden. Biden, who is a former lawyer, has been more proactive in addressing the concerns related to TikTok than his predecessor, Donald Trump. He has called for a security review and has pushed for Congress to legislate on the matter. As a result, TikTok has been forced to comply with procedural justice.

Ultimately, it is the overall environment, rather than ByteDance alone, that will determine TikTok’s fate. For the past four years, the ongoing tensions between China and the US have not been resolved, and this has contributed to the bipartisan support for a congressional bill against TikTok.

Prior to the recent hearing, the Biden administration, like its predecessor, presented TikTok with two options: to spin off its US business or to face a ban in the country.

If TikTok is divested or sold from ByteDance, it is likely to involve several challenges related to technology exports. “Personalized recommendation technology based on data analysis” was added to the US export restriction list, which means that companies seeking to export this technology are required to obtain approval in advance.

If TikTok is banned in the US, it would be the first time that the country has legislated to ban an internet product from another country. This move would set a significant precedent and could have implications for other Chinese platforms seeking to expand into the US market. For example, the development of PDD Holding’s US shopping app Temu, online fast-fashion retailer Shein, and other Chinese platforms may also face similar situations in the future, as the US government continues to raise concerns about data security and national security risks associated with Chinese-owned companies operating in the country.

Yes or No?!

The hearing began at 10:00 am Eastern Standard Time in Washington, D.C. on March 24 and lasted nearly five hours, not including three breaks. According to a source who had attended several other congressional hearings, these hearings usually have many empty seats. However, at this event, even with online livestreaming available, there were long queues at the entrance to attend in person.

At the beginning of the hearing, Cathy McMorris Rodgers, a Republican from Washington state and the chair of the hearing, expressed her core view that TikTok poses a serious threat to national and personal security: “TikTok collects nearly every data point imaginable, from people’s locations to what they type and copy, who they talk to, to biometric data, and more. It’s also a portal for drug dealers to sell illicit fentanyl that China has banned but yet is still produced by Mexican cartels and smuggled across the border, poisoning our children.” Rodgers further criticized TikTok’s data protection measure “Project Texas” as propaganda and argued that the app should be banned with urgency, noting that TikTok’s popularity with 150 million users in the US highlights the need to take action to protect national security and individual privacy.

During the hearing, Chew was the only representative from TikTok who was questioned. In his opening self-introduction, Chew emphasized his Singaporean roots, “I am a Singaporean, born and raised in Singapore, and later went to Britain and the US to study.” Chew also mentioned his wife, “I first met her in the US. She was born in Virginia, not far from Washington, D.C.”

While Chew acknowledged TikTok’s significant presence in the US, with 150 million users and five million companies that conduct business on the platform, he stressed the need to clarify misconceptions about the app. Chew noted that although TikTok is a subsidiary of ByteDance, it is not controlled by the Chinese government. He emphasized that TikTok is headquartered in Singapore and Los Angeles, and that user data from the US is stored within US territory, by a US company, and maintained by US personnel. Additionally, Chew explained that Oracle and other US companies review and verify TikTok’s source code and algorithm to ensure compliance with US regulations and data privacy standards.

During the five-hour hearing, Chew fielded more than 200 questions from over 50 members of Congress. The questions primarily focused on TikTok’s relationship with the Chinese government and parent company ByteDance, as well as the protection of user data and privacy, national security concerns, and issues related to the dissemination of false information on the platform. Additionally, lawmakers raised concerns about the protection of minors on the app and asked for more information about TikTok’s policies and procedures for addressing this issue. Overall, the hearing covered a wide range of topics related to TikTok’s operations and raised important questions about the role of Chinese-owned companies in the US market and the need for stronger data privacy and security regulations.

Chew frequently attempted to explain TikTok’s policies and practices related to data privacy and security by referencing the company’s “Project Texas” initiative. Some observers noted that Chew appeared to be trying to guide the conversation in a particular direction, which is a common tactic used by executives who testify before Congress.

However, most of Chew’s answers were cut short by lawmakers who interrupted him and asked for a “yes or no” response. This left Chew with limited opportunities to provide additional context or explanation for his answers.

Two Crises in Three Years; Trump’s TikTok Ban Fails, Biden Takes a Different Approach

In August 2020, three months before the US presidential election, former President Trump announced that he would ban TikTok in the US unless ByteDance spun it off and sold it to a US company. To this end, Trump issued two executive orders that put forth the requirements for ByteDance to split and sell TikTok or face a ban of the app.

An executive order issued by a president can be implemented quickly without the need for congressional approval. Nevertheless, for an executive order to be considered valid, it must be grounded in law and align with the Constitution and other relevant statutes. If an executive order contravenes legal requirements, it may be subject to legal challenges and could be overturned by the court.

Former President Trump’s executive order invoked the International Emergency Economic Powers Act (IEEPA), which required US telecom operators and app stores to cease conducting business with TikTok, ultimately resulting in a ban of the app. The IEEPA empowers the President to ban US companies from transacting with specific foreign entities after declaring a national emergency, which Trump did in 2019.

However, the IEEPA amendment explicitly prohibits the President from using the powers granted to them to restrict the import and export of “any postal, telegraphic, telephonic or other personal communication, which does not involve a transfer of anything of value” or “information or informational materials”, whether directly or indirectly.

Due to concerns about the legal basis of the executive order, TikTok and three of its online celebrities filed a lawsuit against the Trump administration. The federal judge assigned to the case issued a preliminary injunction at the end of September, blocking the implementation of Trump’s executive order. The Trump administration continued to appeal against the preliminary injunction, while also actively delaying the implementation of the executive order, based on the progress of ByteDance’s sale of TikTok.

It is possible that if Trump had more time in office, he may have been able to achieve his goal of banning TikTok in the US. In 2017, soon after taking office, Trump issued an executive order restricting citizens from several countries from entering the US. Although the order was blocked by the courts just two days later, Trump issued a new executive order, which was also challenged by civil rights organizations and subjected to over a dozen rounds of legal battles before being allowed to go into effect. However, Trump’s efforts to ban TikTok were interrupted by his loss in the 2020 presidential election, which led to a change in administration.

In 2021, after Biden took office, he revoked Trump’s executive order to ban TikTok. However, TikTok remained under scrutiny.

Biden, who has served as a US civil servant for over 50 years, has shown a preference for using the legal process to achieve his goals. Following the withdrawal of Trump’s executive order, Biden ordered the Secretary of Commerce to lead a comprehensive security review of applications controlled by adversarial states and proposed changes to the Department of Commerce rules to increase regulatory oversight. In September 2022, he issued a directive instructing the Committee on Foreign Investment in the United States (CFIUS) to consider the “risks to sensitive data of US users” when reviewing foreign investments.

Throughout this period, there were many reports regarding the relationship between ByteDance and TikTok, as well as the access that Chinese ByteDance employees had to TikTok’s US database.

In December 2022, just before Congress adjourned for the holiday break, a government spending bill was passed that included a provision banning federal employees from using TikTok on government-issued devices. Biden signed the bill into law, and in February 2023, the White House issued a memorandum to all federal government agencies, ordering them to remove TikTok from government-issued devices within 30 days. Prior to this, the US military and Transportation Security Administration had already prohibited employees from installing TikTok on official government devices.

In March 2023, the European Commission, the Council of the European Union, and the European Parliament all announced bans on the use of TikTok on official smartphones by their employees, citing concerns over data security. Several other countries have also implemented similar policies, including Britain, Denmark, Belgium, Canada, and New Zealand. In Australia, cybersecurity experts have called on the federal government to address the issue.

Earlier this month, Montana’s Senate voted to ban TikTok throughout the state, going beyond the federal government’s restrictions. If the ban is also approved by the state House of Representatives and the governor, Montana would become the first state to prohibit the use of the app, setting a precedent for other states in the US to potentially follow suit.

In February 2023, both the US House of Representatives and the US Senate introduced bills that pose a more serious threat to TikTok – a nationwide ban. The DATA Act introduced by the House allows the Secretary of Treasury to ban the platform on the grounds of risk of data leaks, while the RESTRICT Act introduced by the Senate allows the Secretary of Commerce to ban foreign adversaries from investing in the information and communications technology industry if they are deemed a threat to national security.

Both the DATA Act and RESTRICT Act provide new avenues for the US government to potentially ban TikTok, with the RESTRICT Act gaining support from both Democrat and Republican lawmakers, as well as the Biden administration.

TikTok has not been able to successfully garner new support in the US. Civil rights organizations like the Electronic Frontier Foundation (EFF) and the American Civil Liberties Union (ACLU) that opposed the 2020 TikTok ban continue to oppose relevant legislation on the grounds that such legislation could threaten freedom of speech.

TikTok’s biggest supporters in the US are still its own users and content creators. However, according to media reports, many TikTok creators have diversified their content to other platforms such as Google and Facebook.

TikTok’s User Base Grows, But It Has Yet to Become “Indispensable”

Chew often uses the word “trust” when discussing ByteDance’s oversight of TikTok, and he frequently highlights the word “indispensable” when discussing the platform’s role within the company. According to a TikTok insider, being an “indispensable” platform for users, creators, and partners (including advertisers and merchants) is a key strategy for any product to navigate both competition and scrutiny. Douyin, which is another app under ByteDance and similar to TikTok, is adopting a similar approach in China.

TikTok has expanded its reach significantly in the US since the end of 2020. LatePost reports that TikTok’s daily active users in the US has now reached 80 million, a 60% increase from two years ago. This is a significant achievement for a product that has only been available in the country for five years. In comparison, Facebook, the largest social media platform in the US, has 180 million daily active users.

TikTok has set a goal for its overseas penetration rate to match Douyin’s penetration rate in China. Douyin, which boasts 750 million daily active users, has a penetration rate of around 54% in China. In contrast, TikTok’s penetration rate in the US is only around 24%.

A source familiar with the platform commented, “TikTok’s growth in the US has hit a bottleneck, with the number of daily active users gradually stabilizing.” Over the past three years, Instagram and YouTube have also launched short video features to compete with TikTok.

Insider Intelligence, a US research company, has reported that TikTok lacks commercial interests in the US market. In 2022, Meta, Google, and Amazon accounted for over 60% of the US advertising market, while TikTok fell behind. In the US, a short video viewer on TikTok generates less revenue than a user on a social network platform. Mark Zuckerberg, the CEO of Meta, acknowledged during a financial report meeting that Meta’s short video ad monetization is less efficient than social ads.

TikTok’s progress in e-commerce has been slower in the US and other developed countries compared to China, where livestreaming e-commerce has become popular. According to sources, TikTok only launched livestreaming e-commerce in the US at the end of 2022 due to regulatory and competitive pressures. However, it has not been able to replicate the success of livestreaming e-commerce in other developed markets.

LatePost reported that as a result of the regulatory challenges, TikTok has decided to scale back its e-commerce business expansion in 2023, particularly in the US. The company has also postponed its plans to enter Brazil, Spain, and other European countries in the first half of the year.

TikTok was caught off guard by the rapid changes in the geopolitical situation, and its status as an “indispensable” product was not firmly established. Despite this, TikTok has made numerous attempts over the past three years to gain the trust of the US government.

Lobbying has been one of the important methods employed by TikTok. In 2019, TikTok began lobbying activities in the US when the CFIUS launched an investigation into TikTok at the request of several members of Congress, seeking evidence that the app sent US user data to China. That year, ByteDance deployed 17 experts to visit the US Department of Commerce, the White House Office, and other institutions, and spent $270,000 in attempts to gain the trust of the US government.

In 2020, ByteDance increased its lobbying expenses tenfold from the previous year, with half of the lobbying team focused on contacting members of Congress in an attempt to change the wording of the H.R. 1140 bill that “Prohibit Transportation Security Administration employees from using or installing TikTok, a video social media application, on smartphones distributed by the government.” However, these efforts proved unsuccessful as the bill ultimately retained this provision.

According to LatePost’s statistics, ByteDance has spent more on lobbying in the past three years in the US than Huawei has in the past ten years. In 2022, ByteDance’s lobbying expenses amounted to $5.38 million, which is about 1.7 times that of Huawei. ByteDance’s lobbying efforts in the second half of 2022 focused on the following bills:

National Defense Authorization Act for Fiscal Year 2023

Consolidated Appropriations Act, 2023

No TikTok on Government Devices Act

James M. Inhofe National Defense Authorization Act for Fiscal Year 2023

Furthermore, TikTok is attempting to gain the trust of local governments by separating its operating systems by region. Through a project called “Project Texas,” TikTok aims to move its US operating system to a server provided by Oracle in Texas. The company has also agreed to allow Oracle to monitor the inflow and outflow of user data in the US.

As a part of “Project Texas,” TikTok has established a fully-owned subsidiary, TikTok U.S. Data Security Inc., in the US to take over operations that raised concerns, including content recommendation algorithms and management of user data. The code for the recommendation algorithm and the program for accessing user data will be independently reviewed by Oracle and another third-party organization.

In order to reduce ByteDance’s control over the newly established data security subsidiary, TikTok will nominate a board of directors for the subsidiary, which will be reviewed and reported to CFIUS. The employees of the subsidiary must be US citizens or lawful permanent residents and are subject to CFIUS scrutiny.

TikTok plans to invest $700 million to $1 billion per year for “Project Texas,” and this expense is expected to increase with the growth of its user base in the future.

Even with the implementation of various security measures under the “Project Texas,” the US government remains skeptical. Reports indicate that representatives from the Department of Defense and the Department of Justice who audited the proposal still believed that the only way to guarantee national security was to force ByteDance to sell TikTok. President Biden ultimately took their advice into consideration.

A ByteDance employee stated that compared to Facebook, which prioritizes market potential and revenue, ByteDance has a stronger desire for global influence and is willing to accept lower profits in certain regions. This reflects ByteDance founder Zhang Yiming’s firm ambition for globalization.

ByteDance’s ambitions for global influence can be seen in their continued efforts to invest in unfriendly markets such as India, where it is extremely difficult to make a profit due to high server costs in the video business. Despite the challenges, ByteDance remains committed to investing in India, even if it means operating at a loss in the region.

ByteDance has been transferring an increasing number of its employees from its domestic departments to support TikTok since last year. This includes Zhi Ying, former head of Douyin’s market division; Chen Xi, former head of Toutiao, ByteDance’s news and information content platform; and Mu Qing, vice president of the e-commerce business in Douyin who will soon be transferred to TikTok.

Kelly Zhang, the former CEO of Douyin Group, has relocated her work to Singapore, according to sources familiar with the matter. Zhang recently handed over her executive position to Han Shangyou, who previously headed Douyin’s livestreaming and local lifestyle business. In January 2023, Zhang expressed her admiration for CapCut, a video editing tool owned by ByteDance, which had over 80 million global daily active users at that time.

ByteDance’s pursuit for global expansion was again evidenced by their launch of TikTok’s e-commerce business at the end of 2020. The project was initially given the internal code name “Magellan XYZ”, with “XYZ” representing René Descartes’ popularized algebraic notation for unknown quantities, and “Magellan” referring to Ferdinand Magellan, the first Portuguese explorer to circumnavigate the world, hinting at ByteDance’s global ambitions.

The US House Permanent Select Committee on Intelligence held a hearing in 2012 to investigate security concerns surrounding a multinational company. During the hearing, a committee member stated that “as an intelligence committee, we need to be alerting US companies and US citizens before threats occur, instead of waiting for threats to manifest and then reacting.” The committee member was more concerned about the possibility of a threat rather than waiting for an actual occurrence. However, it is nearly impossible for any multinational company to completely eliminate such a possibility.

The fate of TikTok could serve as an example to illustrate the level of business collaboration that can be sustained between two major nations with stark societal differences.

Post-Hearing Interview With Geoffrey Cain, Senior Fellow for Critical Emerging Technologies at Lincoln Network

Geoffrey Cain, senior fellow for critical emerging technologies at Lincoln Network, fellow at the National Security Institute, and former technology policy advisor to the House Foreign Affairs Committee, was interviewed for his thoughts following the TikTok Congressional hearing.

Pandaily: Could you share your perspectives about the hearing?

Geoffrey: I have a lot of thoughts on that. First of all, I have been doing this for many years now, and I have never seen a hearing in which every single member of Congress was so hostile to the witness. It is just not something that I have ever seen before. In the past, they have grilled Mark Zuckerberg and various other technology figures, but I have never seen a hearing where the questions were so universally hostile. There was not one person in there who had some sympathy for Chew or TikTok or ByteDance. I think that is just a reflection of the technological environment that we now live in.

I think the reality is that if you run a company that is fast growing in a cutting edge area, such as social media algorithms and semiconductors, you have to choose where you are going to do business, US or China.

The world used to be more interconnected and globalized, and you could do both. But the geopolitics of the world has changed so much in the last five years, which is what this hearing signifies. It is also reflected both in the business laws and the trade laws of the US and China. So increasingly, the US has stepped up export controls. It has stepped up various sanctions against both individuals and companies in China. On the other hand, China has increased its extraterritorial jurisdiction through trade laws.

I had just returned from Taiwan recently. I visited two plants of TSMC, a Taiwanese multinational semiconductor contract manufacturing and design company, which was really fascinating. There was a lot of talk in Taiwan generally about the same situation as what TikTok is facing. People are concerned that the semiconductor industry is starting to become separated. The US has the CHIPS and Science Act, while TSMC has a plant in Arizona. South Korea is also setting up its own CHIPS Act, and Holland is now implementing export controls.

I am talking about sensitive technological industries. People could just be business executives in the past, but now they have to think about politics.

Pandaily: And how do you think Chew fared at the hearing?

Geoffrey: I have talked to a lot of TikTok employees over the years both in China and in America, and I have also talked to ByteDance employees in the past in China too. One of the things that they have often said about Chew is that he is not really the person who has much decision-making power at TikTok. ByteDance is making the ultimate decision. With the way that he answered the questions, it sounded like he was not sure about them either, or he did not really want to answer them. It is understandable because sometimes there is no right answer. I think that he gave the impression that he is not really the person who is in control, and the questions were beyond the scope of his ranking. He had to go back to check certain things to make sure that he was getting the information accurately. He has never really been dealing with the US Congress. So before the hearing, he was going around Capitol Hill and meeting with individual representatives and officers to express that TikTok is not a threat.

According to people I talked to who work in Capitol Hill, those meetings went quite well. Chew was quite charming and good in the smaller sessions. But I do not think that he was fully prepared for the hostility of the hearing. I think that his advisors and lawyers probably helped him prepare for it, but I do not think that he knew that it was going to be hostile and difficult.

Pandaily: It is not like some one-on-one small talk. About 50 congressmen are on one side of the room and you are on the other side. It is definitely different. I am wondering about your thoughts after the hearing on the implications for other companies with a Chinese background but operating in the US, like Shein and Temu.

Geoffrey: Chinese companies in the US, particularly in the more advanced areas, are going to have to be extremely careful about what they say in public and how they represent themselves to the government because the political situation is extremely divisive right now.

There are lots of people who work for the US government who are hunting for companies that break export control laws or sanctions. I do not think that it is going to be possible going forward for a major firm like TikTok to even operate in the US. If there is another TikTok in the future, I do not think it is going to have that opportunity to become a major force in the US. I think the political situation has turned in the opposite direction.

Huawei was at the center of trade wars, but the thing about Huawei was not quite the same as what TikTok is facing now. Huawei did become one of the largest smartphone makers in the world. But in the US, it did not have a big presence. In 2019, it pulled out from the country, partially because they were under pressure from the government. Huawei never really got the same level of access to regular American citizens. Regular people use Huawei’s phones, which was not ever a big thing in the US.

But TikTok’s problem is entirely new. It is the fastest growing social media company ever. Facebook, Twitter, and Instagram did not grow as fast as TikTok. In the US, for Gen Z in particular, it is becoming one of the main ways that people get news information. That is why Congress can bring the CEO of TikTok to the hearing to attack him for several hours.

That is not something that I have seen before. So I do think that the environment is not going to be good in the future. Global companies have to choose who they are going to do business with.

Pandaily: What are the implications for other social media companies in the US, like Meta, Instagram, and Snapchat?

Geoffrey: If TikTok is banned, it will benefit them. I think The Washington Post has reported that, but I would have to double-check that. It is a proven fact that US social media companies do not want TikTok to operate in the country because it will generate great competition. But I personally do not believe that all the representatives at the hearing are in the pocket of those social media companies. I do not think they are taking lobbying money and then representing their views. It is more complicated than that.

There has been a concerted effort by technology leaders to oppose TikTok’s presence. There was a coalition recently of tech executives in San Francisco. They were talking about TikTok. They have every interest in supporting divestiture or a ban on TikTok. I have my own thoughts on that, which is, the US does have a free market.

Personally, I do think that the only outcome here is that TikTok has to be sold. I do not support a full ban on TikTok because I think that that would go against how the market works. I do not think the US should ban companies. In the end, a forced sale would happen.

Pandaily: Did you observe any TikTok user reactions to the hearing? The content creator has become a new type of professional. They are earning income from the platform. Do you think their reactions will change the landscape?

Geoffrey: Some people are saying that banning TikTok might alienate Generation Z voters who rely on TikTok for their information and small businesses. One of the things that people are saying right now in Washington, D.C. is that it might hurt the Democrats in particular in the 2024 election if they alienate those voters too much. But I am not totally sure about that.

The political system is a very short term system, and people tend to forget really quickly about this kind of thing. I do not think that two years from now, they are not going to vote based on what happened to TikTok. The TikTok thing’s influence would be stronger if we were in the election year. But the fact is that it is 2023. I think it makes it a little easier for Congress and the White House to do all this.