For political reasons, TikTok would probably just as soon recede into a hedge right now like Homer Simpson, but its parent company is making a big splash in AI land.

ByteDance, the China-based TikTok owner and political punching bag for successive US administrations, is apparently emerging as the nation’s answer to OpenAI. According to a Financial Times report, ByteDance is pulling ahead in the Chinese generative AI market, ordering the most chips from Nvidia of any Chinese firm. If ByteDance emerges as a clear frontrunner in the AI arms race, that could expose it to a new level of geopolitical scrutiny and heighten threats to the future of its beloved subsidiary TikTok. 

The AI Dominance Challenge

China’s tech scene has long been a mirror-image of the one in the US. The so-called Great Firewall kept out the vast majority of US tech companies, so China developed its own tech giants to cater to its 1.4-billion strong population. The same holds true for its AI market — OpenAI’s ChatGPT is banned in China, and domestic tech giants including Alibaba, Baidu, and Tencent have pitched into the generative AI hype cycle. This time, though, it’s not just China trying to freeze out US businesses. The US has pursued an aggressive AI policy against China, implementing trade restrictions on semiconductors.

As the US heads into the next Trump administration, the president-elect has signaled that he won’t ease up on that front of the US-China trade war. Trump also promised on the campaign trail, however, that he would save TikTok and as president, he would have considerable power to support the app even after President Biden’s ban was upheld by an appeals court earlier this month. But if ByteDance’s AI star rises too high, that could put TikTok back in the sights of the Trump admin 2.0:

• Sources told the FT that ByteDance has been on an AI hiring spree, attracting AI talent from other Chinese tech giants and startups. One source told the FT that ByteDance CEO Zhang Yiming decided to go “all in” on large language models (LLMs).
• Per the FT, ByteDance’s ChatGPT-esque app Doubao had 60 million monthly active users on mobile as of November, the most of any such app in China. For comparison, OpenAI boasts 300 million weekly active users.

An AI Company by Any Other Name: One source told the FT that although Yiming is chasing after AI, he’s concerned about ByteDance being perceived as an AI company specifically because of the heat it could catch from Washington as a result. Trump already changed his mind once about TikTok, having proposed a ban on the app during his first term, so there’s a non-zero chance of him reverting to his previous dislike.

Now another industry is vying to be your banker. 

On Friday, Sixth Street invested $4 billion into a vehicle that will take on consumer loans from BNPL player Affirm, which could ultimately allow the latter to grant up to $20 billion in BNPL loans in the coming years. Translation: Private credit and BNPL firms are teaming up to capture a bigger share of the consumer finance supply chain.

Forward-Flow Thinking

Call it a match made in fintech heaven. BNPL players need funding, and private credit firms are getting creative to find places to invest capital. The meeting point is what the fintech industry has come to dub “forward-flow agreements.” 

Essentially, Sixth Street has agreed to buy up to $4 billion of Affirm’s BNPL loans over the next three years, with the ability to top up investments as consumers pay down their debt, typically over the course of four installments paid across four to six months. By offloading the debt it has underwritten from its balance sheet, Affirm opens up lending capacity. In this instance, it says the agreement could allow it to grant up to $20 billion in BNPL loans over the next three years. Sixth Street gets access to supposedly more-stable debt than credit cards (BNPL debt has a delinquency rate of around 2%, compared with 9% for credit cards) while Affirm gets an alternative to the public asset-backed bond market. It’s why so-called forward-flow agreements are becoming a favorite of the BNPL craft, And they might just be crucial to helping Affirm reach its lofty goals:

• Affirm has set a target of more than $34 billion in gross merchandise volume, or the total volume of purchases made through its service, for fiscal year 2025. In its most recent quarter, it reported just $7.6 billion.
• In a Q&A regarding the deal published in The Wall Street Journal on Friday, Affirm COO Michael Lindfor said the company “would need somewhere between $25 billion and $30 billion in [lending capacity]” to hit that goal, and said private credit represents a crucial partner in that journey. At the end of September, Affirm said it had a lending capacity of $16.8 billion, up 130% over three years.

Liftoff: BNPL services tend to be particularly attractive to lower-income consumers who may be unable to access traditional credit markets. According to one market research report from ResearchAndMarkets.com, the total industry’s annual US GMV could increase from around $109 billion this year to $171 billion by 2029.

The $15 billion bid for US Steel by Japan’s Nippon Steel may be on life support. 

The Committee on Foreign Investment (CFIUS) is divided on whether the deal presents a security risk. With a December 23 deadline to advise President Joe Biden, the split gives him more grounds to block the acquisition, announced a year ago.

Union Man, Now, All The Way

While the Treasury, Pentagon, and State Department say the deal poses no security risk, US Trade Representative Katherine Tai, a member of CFIUS, disagrees, citing potential supply chain and intellectual property issues. Even if Nippon Steel accepts a mitigation agreement, USTR may remain opposed, according to the Financial Times:

• US Steel, founded over 120 years ago, has a significant legacy, having supplied steel during WWII and contributed to iconic structures like the Superdome and the UN building. Today, it employs about 22,000 people, but its workforce has halved since 2011, and its share price has fallen more than 15% in the past year. 
• The company warned that blocking the acquisition could lead to job cuts and mill closures. Union leadership may oppose the deal, but many workers support it, with hundreds of union members rallying at a mill in Clairton, Pennsylvania, over the weekend. 

Same Page for Once: In a Truth Social post earlier this month, President-elect Donald Trump said he was “totally against the once great and powerful US Steel being bought by a foreign company.” Trump said he would make US Steel “Strong and Great Again,” through a series of tax incentives and tariffs. Hey, looks like there is some common ground between ol’ Joe and Don after all.