In Congressional hearing, TikTok´s CEO Shou Zi Chew repeatedly stated that TikTok protects his kids better in Singapore than kids in USA, according to STRAND CONSULT.

TikTok CEO Shou Zi Chew sat in the hot seat at a US House of Representatives Energy & Commerce Committee hearing for some 5 hours. However it seems that Congress is not yet done grilling the executive, as a long list of unanswered questions remains. While TikTok would prefer to submit responses in writing and avoid the glare of the cameras and the heat of the public focus, it is unclear whether answers will satisfy Congress. Another hearing is probably needed.

Chew likely attended a testimony prep programme. Law firms work with witness preparation consultants to improve outcomes for their clients under litigation and to make CEOs look better in the public. Chew can hire the best that money can money, even professional acting coaches dispatched for crisis communications.

Despite the many unanswered questions, there were important takeaways from the hearing, including that bombshell that TikTok provides a “child safe” version of its platform in Singapore. This clearly exceeds the standards of the USA and another other country. Indeed Chew repeatedly made privacy pimps of his children in Singapore to avoid difficult questions of data protection, safety, and national security.

Outside the House were legions of astroturfing activists which TikTok crowdsourced for support. Strand Consult has documented such tactics honed for political battles designed to preserve Big Tech revenue. Strand Consult’s report Follow the money – Net Neutrality Activism Around the Globe details the transnational strategies deployed to create the appearance of grassroots efforts in service of corporations. This technique was most recently exposed by a South Korean lawmaker, calling out Google and its surrogates for evading tax disclosure and stoking fake outrage.

However impressive the performance of Chew and the measures proposed by TikTok, there is no solution short of a ban or divestment which can provide Congress the assurance it requires for national security. This research note explains why. While TikTok is significant as the world’s most visited internet domain, it should distract from other technologies from the People’s Republic of China (PRC) which pose similar unmitigable risks including but not limited to Huawei, ZTE, Lenovo, Lexmark, Hikvision, Hytera, Dahua, YMTC, and countless others.

TikTok´s narrative

TikTok’s Chew was well-prepared in spoken and written remarks and appeared to stay with a pre-determined strategy. He described his life and career in a way to pull the heartstrings of Americans: his Singaporean citizenship (notably not from PRC), service in the Singapore military, degrees from US and UK universities, stints at Goldman Sachs and in Silicon Valley venture capital, and his family which includes an American-born wife and 2 children who live in Singapore where, as Chew reminded the Committee, the harmful American version of TikTok can’t be used. He further detailed that 3 of 5 board members of TikTok are American, the headquarters in Los Angeles and Singapore, and corporate registration in the Caribbean. He noted that TikTok itself is not available in China. Chew took the nice and easy questions but punted on the nasty ones, likely pining for a time when the cameras were turned off and attention died out.

TikTok acknowledged Congress’ concerns about the PRC and proposed measures to ensure safety, privacy, and security, amounting to a “firewall around American data on American soil overseen by American personnel.” Chew detailed its Project Texas which reportedly keeps TikTok’s US user data on Oracle servers in Texas under a company called TikTok US Data Security. Project Texas is to report to an independent US company, and TikTok itself promised not censor in the US. Chew took pains to detail a physical and policy defense for the TikTok narrative. Strand Consult observes that Huawei attempted similarly as described in the report Fact Check: 10 Myths That Drive Huawei’s Media Narrative.

Chew pleaded this these measures amounted more than any company has ever attempted to placate Congress. However, this comes off as authentic as a fake Louis Vuitton bag in Thailand’s Patpong Road. Counterfeits have a striking resemblance to the real thing, but they are not the real thing. In the same way, for all its attempts to be “Made in Texas”, TikTok is still “Made in China”.

Why TikTok’s Proposal Fails: Ownership, Law and Practice

TikTok’s proposal to Congress fails for reasons of ownership, law, and corporate practice. Tellingly, Chew played down that he reports to TikTok’s owners ByteDance, which is based in Beijing and whose board includes PRC government members. TikTok’s two other board members are ByteDance executives, a red flag. Ostensibly TikTok could ameliorate this problem by divesting its ownership from the PRC, but as TikTok notes itself in its testimony, “…a change in ownership would not impose any new restrictions on data flows or access.” So a problem remains.

TikTok proposes to mitigate the problem of foreign (PRC) control of data flows and access, but there is nothing in US law to stop data from being removed from the USA. The American data market is free and open by design. TikTok could make the promise to keep data in the US, but it would not necessarily be illegal for it to remove data. Moreover, data can remain in the USA and still be accessed by an agent, affiliate, or machine of the PRC. Indeed any Chinese national is subject to that country’s espionage requires which require the person or firm to participate in spying activities when requested.

Chinese government ownership, regardless of the percentage, is problematic. Even where there is not ownership, there can still be a problem. Strand Consult demonstrated this with it study of the OpenRAN Alliance in which state-owned PRC companies exert influence can influence process and strategy even without ownership, notably through membership and governance.

Essentially any data anywhere produced on Chinese software or hardware is available to the Chinese government at any time for any reason.

All the things Chew didn’t talk about

An expert witness like knows how to manage questions and answers. When answers are favorable and neutral, they can be stated immediately and outright. Questions which lead to unfavorable answer can be managed through the block and bridge technique, or alternatively the expert pivot to the point the witness wants to make. The witness can also delay with a promise for a substantive written answer at a later date or decline to answer for legal, ethical or personal reasons.

It appears that Chew and his handlers contemplated every single unfavorable question in advance. Chew avoided many difficult and important questions from Congress perspective, including but not limited to ownership by ByteDance, relationships with the Chinese government, human rights abuse of Muslims in China (and ByteDance’s coverup), censorship of protestors, spying of US journalists, the collection of US citizen data in China, and so on. Indeed Chew shifted from national security questions by focusing on his own children in Singapore and even suggested that Singapore had better protection for children than the United States.

Chew’s performance reminded Strand Consult of Huawei’s testimony in the UK Parliament in which Huawei declined to answer questions about China. In the UK Parliament hearing, Huawei employees attested to having freedom of speech in working for the company. However the responses by UK Huawei employees Dr. Yao Wenbing, Vice President Business Development and Partnerships; Victor Zhang, Vice President and Chief Representative; and Mr. Jeremy Thompson, Vice President differed it came to Hong Kong. See the UK Parliament at 9 minutes and 36 seconds in the hearing.

Notably Chew stated that TikTok had nothing to do with China or Chinese government practices; he even feigned ignorance of the PRC, saying that he lived in Singapore. While this tactic can work in the context of a hearing, delaying and demurring from key questions is not a long-term strategy for success.

TikTok’s statements are closely watched by journalists, investors, policy analysts and others. The lack of answers and alternative explanations can lead people to speculate. Indeed TikTok probably has no alternative narrative for what goes on in China; it cannot be explained or justified in any way, and hence it is an inevitable liability for TikTok and its employees. Strand Consult predicts that this exposure will have a similar career-limiting and reputational effect on TikTok’s US employees, just as it has had on Huawei employees outside of China, many of whom have resigned and rebuked the company’s practices. See Strand Consult’s note It is career limiting to work for Huawei.  Here are 10 examples of reputational risks to consider when working for the company.

Moreover, the Chinese government defends TikTok in international media, reinforcing perceptions. Naturally TikTok, ByteDance and the PRC are not synonymous, but their symbiotic relationship, or just the appearance of one, provides valuable fodder for policymakers. Notably the Chinese government has celebrated its loyalists. Think of the princess welcome for Huawei´s CFO Meng Wanzhou returning from Canada following the court settlement. It is standard procedure for Chinese companies outside the PRC to state that they have no relationship with the Chinese government.

Conclusion

TikTok’s Chew observed that all companies should be held to the standards and conditions to which they propose. Apparently this also applies to Chew’s Singapore example, that children should access the safe version of the platform, not what children use today.

In any event, highlighting the cross-country differences and then proposing that all companies use the “Project Texas” solution seems problematic. If TikTok optimizes its policy for the US, what does that mean for the other jurisdictions? Moreover should the US get the Texas or Singapore version? For people outside the USA, Chew’s comments could be read as a dismissal, that TikTok only cares about pleasing the policymakers of its single biggest market.

While some speculate that TikTok getting hammered is good for TikTok’s competitors, Strand Consult expects the opposite. Similar scrutiny will likely come to other tech companies along with demands for data localization, firewalls, independent boards, and so on.  The hearing seemed to provide no upside for TikTok investors. Even if TikTok could live up to the rules it proposes for US, could smaller companies do the same?

Moreover, reputational risk is likely to bleed to Oracle. Does Oracle’s cloud infrastructure employ software and hardware from the PRC based Inspur or Lenovo? How could hosting TikTok’s data, now a politically entangled enterprise both in the US and China, comprise Oracle?

In any event, TikTok’s lawyers have been enriched by the experience. However, embarrassing it may be for TikTok, its law firms are likely well-paid to teach him to perform in front of the committee. 

Strand Consult is pleased that the House Energy & Commerce Committee held the hearing and welcomes the long overdue focus on China brought by Chair Cathy McMorris Rogers and hopes the Committee looks critically at the Chinese ICT sector, as similar risks are at play across the board.

US security policy vis-à-vis China is a mixed bag. Efforts to mitigate the threat of Huawei have backfired in many countries. Strand Consult documents that some countries have increased use of Huawei and deployed their cloud infrastructure. US companies get significant workarounds on Huawei restrictions from the Department of Commerce. The Federal Communications Commission declined to restrict fully Covered List entities Hikvision, Hytera and Dahua, instead offering exemptions for everything which is not officially “public safety” (why else would a bank install a camera if not for public safety?). US policy allows products embedded with memory chips made by Chinese military affiliated YMTC to enter the country. While the Department of Defense has Lenovo and Lexmark on a blacklist, these products of these companies are widely available and capturing greater market share.

Though it was a tough day for TikTok, Strand Consult is not aware of any foreign company that can receive similar due process in China. No foreign person presents in front of the legislature in a live, broadcasted and recorded hearing nor can provide hearing remarks which are made available for public view. Strand Consult’s report You’re Not Welcome: An Analysis of Thousands Foreign Technology Companies Blocked by China Since 1996 describes the many double standards with China and the trillions of dollars foreign companies have lost not having access to China’ market, to say nothing of competition, fairness and freedom.

The US Congress needs another hearing to uncover all that things which CEO Chou Zi Chew declined to answer directly.  It was very clear that there was a long list of critical questions which he could not answer and which he would rather answer in writing once the cameras were off and the public focus had cooled down.