Why China might be OK to sell TikTok to Elon Musk

New York
CNN
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After previously opposing the idea of ​​a TikTok sale to stave off a looming ban, the Chinese government may have found an owner it can live with: Elon Musk.

Chinese officials — who are expected to have some influence over whether and how TikTok’s U.S. assets can be sold to a U.S. buyer — are discussing a possible option that involves selling at least part of the U.S. version of the app to Musk’s X, according to reports from Bloomberg and that The Wall Street Journal. CNN has not independently confirmed the discussions.

The discussions would mark a significant shift in China’s stance on a TikTok sale just days before the law that could ban the app in the United States takes effect. To avoid a ban, the law would allow TikTok’s parent company ByteDance to sell to a US-based owner.

The reports come after the Supreme Court indicated last week that it would uphold the law on national security grounds, despite TikTok’s argument that it represents an illegal suppression of free speech. China’s Ministry of Commerce has previously said it will “firmly oppose” a forced sale of TikTok, although other potential buyers are lining up. TikTok parent company ByteDance has also previously indicated that the app is not for sale.

ByteDance and Musk did not respond to requests for comment on the reports. And TikTok beat them down; Spokesman Michael Hughes told CNN that “we cannot be expected to comment on pure fiction.”

Still, there are logical reasons why Musk, ByteDance and China could all find it in their best interests to facilitate a sale of TikTok’s assets to the X owner.

ByteDance may simply want to profit something for the US version of TikTok before it loses access to the valuable US market.

For China, selling to Musk could mean putting TikTok in the hands of an ally, someone whose business empire is deeply dependent on the Chinese market and who has the ear of President-elect Trump at a time when China will be looking for leverage in customs negotiations.

For Musk, acquiring TikTok and preserving Americans’ access to the app at the last second, after TikTok fought the ban on First Amendment grounds, would play directly into the billionaire’s (often hypocritical) image of himself as a defender of free speech. That would give him control of an even bigger and more influential social media platform than X, which he has already successfully used to advance his own interests, including helping to re-elect Donald Trump. And Musk already has a team—small as it may be—at X familiar with managing a social media algorithm and ad sales.

We might be hearing rumblings about it now to see how people feel about it.

“My guess is that it’s a fluke by either Musk or the Chinese to see the reaction,” James Andrew Lewis, director of the Strategic Technologies Program at the Center for Strategic and International Studies, said in an email to CNN. “The Chinese are probably figuring out where it would fit into a larger deal with Trump, but I can’t see them giving it away for free.”

But such a deal could still face real hurdles, including Musk having to secure money to buy an app in a deal that could cost $40 billion to $50 billion, according to Wedbush analyst Dan Ives.

ByteDance is expected to need the Chinese government’s sign-off to sell TikTok’s US operations due to export restrictions that could prohibit the sale of sensitive technology, such as the app’s recommendation algorithm, without a license.

And if the company’s legal challenge to the Supreme Court fails, Musk could be seen as the most China-friendly American buyer given the significant amount of business he does in the country.

China is Tesla’s second largest market; in the third quarter of 2024 alone, Tesla earned $5.7 billion in revenue from China. Tesla’s Shanghai Gigafactory, which Musk has praised for building the company’s highest-quality cars, is as well among the company’s most productive plants. And the company is also in the process of building a massive battery factory in Shanghai.

Musk has held several meetings with Chinese officials in recent years, including a conversation with Chinese Premier Li Qiang in Beijing last April, where the official praised Tesla as a “successful model” for US-China cooperation. “Tesla is willing to further deepen cooperation with China and achieve more win-win results,” Musk told Li during the meeting.

Although Musk has portrayed himself as a crusader for free speech in the United States, he has remained relatively silent on the issue when it comes to China, which has arrested political rivals of Chinese leader Xi Jinping on an unprecedented scale since Xi took power in 2012.

Musk has also referred to Taiwan as an “integral part of China,” infuriating the Taiwanese leadership.

“One of the biggest investors in China from an infrastructure standpoint is Tesla, so Musk’s relationship in Beijing, outside of Tim Cook of Apple, is probably the strongest of any American businessman,” Ives told CNN. Still, Ives said China is unlikely to allow the sale of TikTok with its algorithm, which he called the popular app’s “key DNA.”

China may also want to use Musk to get to Trump. A TikTok deal could serve as leverage in negotiations with the incoming administration to stave off the massive tariffs the president-elect has threatened to impose on goods imported from the country, which could cause big companies produce fewer goods there. After donating to Trump’s re-election campaign, Musk has become one of his closest advisers and has reportedly joined calls between the incoming president and other world leaders.

And if Trump gives his blessing, the president-elect could also use the deal to claim he kept his promise to save TikTok for Americans. The TikTok Ban or Sale Act allows the president to decide whether a so-called “qualified divestment” of the app has actually taken place to allow TikTok to continue operating in the United States.

Musk’s “significant financial resources, established business relationships in China through Tesla and prominence in the social media industry through X make him a potential candidate to broker a deal acceptable to multiple stakeholders,” Dimitar Gueorguiev, an associate professor of political science at Syracuse University, said in an emailed comment.

For Musk and X, the TikTok acquisition could be a “golden asset pick-up,” Ives said. TikTok’s 170 million monthly US users would be a big boost for Musk’s social media company. And their videos could also provide beneficial training data for Musk’s artificial intelligence company, xAI.

A big question hanging over any discussion of a Musk TikTok purchase is likely to be how he can afford it.

Although Musk is among the richest people in the world, much of his wealth is tied up in shares of Tesla and his other companies.

And after his money-losing acquisition of X, formerly Twitter, more than two years ago, Musk could have a harder time finding financing partners for a TikTok bid, even though the short-form video app almost certainly has a more lucrative ad business than X.

Musk’s purchase of Twitter for $44 billion was always overpriced, and the billionaire’s subsequent post-purchase decisions further fueled the social media company’s value. It has reportedly abandoned the banks that loaned him the money to buy Twitter couldn’t service the debt without losing money, leaving them with big stains on their balance sheets.

There are limits to how Musk can also use the $170 billion in Tesla shares he owns directly as collateral for loans. Still, banks may be interested in working with Trump’s “first mate” if other companies are also expected to benefit from his connection to the White House. Musk’s net worth has risen sharply since the election.

Even if Musk managed to buy the app, there is no question whether TikTok users would stick around under a new owner.

Many frustrated users fled X following Musk’s takeover, when he changed its recommendation algorithm, did away with the company’s trust and security team and reinstated previously banned accounts, including white supremacist ones, leading to an increase in hate speech and misinformation. Musk himself has also boosted racist conspiracy theories on the app.

Some TikTok users reacted to reports of Musk’s possible acquisition with excitement, including one user who posted a dance video celebrating the news.

“The idea of ​​TikTok going away is scary. But you know what’s scarier? Elon Musk owns it,” a user named Omie said in a video on Tuesday. “I’d rather have this app banned than mothertrucker owning it. I mean, honestly, the thought of this turning into a Twitter is terrifying.”

Another user, who goes by Mo, said in a video: “I love TikTok bro, but why does it have to be Elon Musk? He’s already running Twitter (into) the ground.” One commenter said on that video, “I’d rather China have my information than Elon.”

And TikTok user Dash Dobrofsky said in a video captioned “Oh dear god, please no,” that Musk buying TikTok “sounds like a terrible idea… This would arguably make Elon Musk the most powerful man in the world.” ”

Such a user revolt could ultimately undermine the value of the platform for Musk and any investors he might be able to round up for a TikTok purchase.