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China tech

US scrutiny of China's TikTok the latest headache for SoftBank

Sen Rubio requests investigation into social media app part-backed by Vision Fund

TikTok operator ByteDance, known as the world's most valuable startup, bought Musical.ly in 2017 for a reported $1 billion.   © Reuters

NEW YORK -- Calls by U.S. Senator Marco Rubio for a review of ByteDance's acquisition of the wildly popular social media app TikTok could also hit Japanese tech investor SoftBank.

SoftBank's Vision Fund, which is still reeling from the collapse in the value of its stake in shared office provider WeWork, is a major backer of the Chinese-owned ByteDance, one of the world's most valuable privately-held tech companies.

Rubio, a Republican senator from Florida, on Wednesday called on the Committee on Foreign Investment in the United States, Cfius, to investigate ByteDance's 2017 acquisition of Musical.ly, the video app it later renamed TikTok, out of concern it was "censoring content" to curry favor with Beijing.

ByteDance acquired Musical.ly for $800 million in late 2017 as a way to broaden its appeal outside China.

Cfius, which reviews the national security implications of foreign investments in U.S. companies, also has the power to examine deals retroactively and could force ByteDance to sell TikTok, the asset which has fueled its explosive growth. Any impairment of ByteDance's value would have a knock-on effect on the Vision Fund's wilting returns.

Earlier this year Cfius ordered Beijing Kunlun Tech, the Chinese owner of Los Angeles-based gay dating app Grindr, to sell its majority stake in the dating app Grindr to prevent sensitive user data including HIV status from being compromised.

"Today I will be asking Cfius to review TikTok's acquisition of Musical.ly," the Florida Republican tweeted. "Ample & growing evidence exists that TikTok's platform for western markets, including the U.S., are censoring content in line with China's communist government directives."

Until recently, TikTok's main regulatory challenges in overseas markets such as the U.S., U.K. and India involved restricting access to inappropriate content by children, as well as data privacy concerns.

But the social media platform now stands accused of censoring content related to politically sensitive issues including the Hong Kong protests. TikTok disputes the claims.

"Our content and moderation policies are led by our U.S.-based team and are not influenced by any foreign government" including China, a TikTok spokesperson said in an emailed statement to the Nikkei Asian Review, adding that the company is looking to set up an independent committee to bolster transparency.

Paul Marquardt, a Washington-based partner at law firm Cleary Gottlieb who focuses on foreign investment review, said censorship of content "does not seem to fall into the kind of thing Cfius is typically focused on."

Cfius is "not oblivious to transactions that might be controversial, but they are quite disciplined about trying to only look at national security issues," Marquardt added. "Whether they look at your transactions might be influenced by political considerations, but the answer they give after they look at it probably won't be."

Rubio's call to scrutinize TikTok, which is viewed by Facebook as a competitor, comes two days after the U.S. Commerce Department blacklisted 28 Chinese companies and government agencies for their involvement in government surveillance in western Xinjiang Province.

The United Nations says more than a million Uighurs and other ethnic minorities have been placed in detention camps in Xinjiang.

Among the companies that now will no longer be able to buy U.S technologies, are security system company Hikvision, and the artificial intelligence startups SenseTime and Megvii.

Megvii filed recently for a Hong Kong initial public offering. Goldman Sachs, one of the sponsors of Megvii's share sale, has said it is "evaluating" its role in the listing "in light of the recent developments."

The latest U.S. actions against Chinese tech companies has extended Washington's scrutiny beyond the established players it first targeted, such as telecom equipment provider Huawei Technologies. Many of the latest targets are less than 10 years old.

Additional reporting Wataru Suzuki in Tokyo.

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