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China would pull TikTok app rather than divest it: Strategist

The US House of Representatives passed a bill over the weekend aimed at forcing TikTok's parent company ByteDance to divest from the company. President Biden has previously claimed that if the bill makes it to his desk, he would sign it into law. China has recently forced Apple (AAPL) to remove several popular messaging apps, including Meta's (META) WhatsApp, from its app store in China.

Macrolens Chief Strategist Brian McCarthy joins Market Domination to give insight into China's reception of the bill to ban TikTok from the US and how it will affect US/China relations.

In terms of the connection between China and ByteDance, and why China would not allow divestiture from ByteDance, McCarthy affirms: "The fact that there is no connection is their story and they're sticking to it come hell or high water. And I think, while ByteDance is probably worth anywhere between $250 billion to $300 billion, there is a fair amount of capital at risk here. Now, the company wouldn't cease to exist if it gets booted from the US market, but obviously, there's going to be tens of billions, if not triple-digit billions, lost, much of it on the part of Chinese investors. But that's really small change compared to what China is fighting for which is its unfettered access to our market. This is just one of a number of fronts in what is an increasingly, sort of, heated debate about China's involvement in global marketplaces. "

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

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This post was written by Nicholas Jacobino

Video transcript

ALEXANDRA CANAL: A possible TikTok ban is one step closer to becoming law. A bill forcing the divestiture of the social media app heads to the Senate after the House passed it this past weekend. The bill's advancement comes as China steps up its campaign against foreign social media services.

To discuss the rising tensions between China and the US, we're joined by Brian McCarthy, Macrolens chief strategist and managing principal. Brian, thanks so much for joining us today. In the event that the US forces TikTok to divest, how do you think that will be received in China?

BRIAN MCCARTHY: Well, it's already not being received very well by the Chinese. And I think if, ultimately, that push does come to shove, I would anticipate the Chinese government would pull the app, rather than selling it. I don't think there's any way that they would provide tacit agreement with what the US is arguing here. They will just deny, deny, deny that there's any link between the Chinese Communist Party, and the data that's being generated by this app.

But there's a very long road ahead of us. The House attached the legislation to the foreign aid bill over the weekend. So the Senate was, sort of, trying to slow walk it. But it looks like they're going to be forced to vote on it this week. And it'll likely be signed into law by the end of the week.

And then we're going to go to litigation. So TikTok has said clearly that they're going to fight this in court. They've already won a couple of cases in Illinois and Montana, so First Amendment versus national security. This would be a really big case, but will probably be pushed out into 2025.

JOSH SCHAFER: Brian, I guess help me think through something. If there is no actual relationship between ByteDance and the Chinese Communist Party, if that isn't true, then why would the Chinese not allow a divestiture in the sale?

BRIAN MCCARTHY: Well, there is. But the fact that there is no connection is their story, and they're sticking to it come hell or high water. And I think while ByteDance is probably worth anywhere between $250 to $300 billion, there is a fair amount of capital at risk here.

Now, the company wouldn't cease to exist, if it gets booted from the US market. But obviously there's going to be tens of billions, if not, triple-digit billions lost much of it on the part of Chinese investors.

But that's really small change compared to what China is fighting for which is its unfettered access to our market. And this is just one of a number of fronts in what is an increasingly sort of heated debate about China's involvement global marketplaces.