TikTok's plan to base its international HQ in the UK has been thrown into doubt following pressure by Washington over the Chinese firm's future in the US.
ByteDance, owner of the video sharing app, has had talks with the government about basing its HQ in London.
But the US is considering banning TikTok and may only allow it to keep operating if it splits from China and becomes an American company.
"We remain fully committed to investing in London," said a ByteDance spokesman.
A spokeswoman for the Department for International Trade said: "ByteDance's decision on the location of their global HQ is a commercial decision for the company."
It comes as tensions mount between the UK and China over the government's recent decision to order the removal of Huawei's 5G equipment from Britain's mobile networks by 2027.
There are fears it could prompt a tit-for-tat economic war between the two countries.
Chinese ambassador to the UK, Liu Xiaoming, told The Andrew Marr Show: "We are still evaluating the consequences. This is a very bad decision."
Asked whether China would punish UK companies operating in China, Mr Liu said: "We do not want to politicise the economy. That is wrong."
But he said: "It is wrong for the United Kingdom to discriminate [against a] Chinese company because of pressure from the United States."
'In the crosshairs'
The US has already implemented a number of sanctions against China's Huawei.
The Trump administration claims that the Chinese telecoms firm provides a gateway for the state to spy on and potentially attack countries that use its equipment.
Huawei strongly denies the claims.
George Magnus, research associate at University of Oxford China Centre, said it was "hard to predict" how the Chinese government would retaliate for the Huawei decision.
"But we expect British companies will be in the crosshairs of all of this," he said.
China is an important market for British business.
Jaguar Land Rover, which is owned by India's Tata Motors, sells its vehicles to China. Last month it borrowed £560m from five Chinese banks after sales dried up because of the coronavirus.
China is also a major investor in the UK, in particular the nuclear industry. China General Nuclear Power Corporation has invested around £3.6bn in the UK, including the Hinkley Point nuclear power project in Somerset.
Josh Hardie, deputy director general of the Confederation of British Industry, said: "Post-Covid, promoting trade will be an important plank of our recovery, so we must think carefully about a future relationship that balances UK global competitiveness with wider interests. "
"We do not want to politicise the economy," Chinese ambassador Liu Xiaoming claimed to the BBC about potential repercussions for UK businesses based in China after the government U-turn on Huawei.
But given how trade is being used as a political weapon by both sides, it's impossible to see how this could not be the case.
China has form in targeting companies as a proxy for the countries that it is rowing with.
Take Australia, which has blocked Huawei from its national infrastructure since 2012.
China has recently banned some of its beef businesses and put tariffs on barley, designed to hit the country's important agricultural sector.
On the other hand, China is sinking vast sums of money into major infrastructure in the UK, such as nuclear power plants.
Huawei alone is investing £1bn in developing chips in a new facility in Cambridge.
These projects are just part of the deep economic interdependence between the UK and China - which could just still prove to be the glue holding an ever frostier relationship together.
As Emily Taylor of Chatham House's International Security Programme argues: "Mutual dependence creates stability and if that's hacked away at, global stability will suffer."
TikTok currently employs around 1,000 people in Europe, with the majority of those based in the UK and Ireland.
The Sunday Times reported that a decision by TikTok to build its headquarters in the UK has the potential to create 3,000 jobs.
The Chinese video-sharing platform is hugely popular and the app has been downloaded two billion times.
US Secretary of State Mike Pompeo - who is visiting the UK this week - has previously said Washington is considering banning TikTok.
But last week President Trump's chief economic adviser Larry Kudlow appeared to change course and said: "As has been reported in some places I think TikTok is going to pull out of the holding company which is China-run and operate as an independent American company.
"That's a much better solution than banning [or] pushing away."
Mr Pompeo claims that America's TikTok users are at risk of their data ending up "in the hands of the Chinese Communist Party".
A spokesperson for TikTok said: "We have never provided user data to the Chinese government, nor would we do so if asked."
India has already blocked TikTok as well as other Chinese apps. Australia, which has already banned Huawei and telecom equipment-maker ZTE, is also considering banning TikTok.