"If Chinese government demands US data and Bytedance's Chinese subsidiary refuses, the government can shut down the Chinese subsidiary, but the Cayman island parent will still operate. Hence Chinese government has no power over the US subsidiary."

The issue is the Chinese government can compel it's citizens to do whatever they want. Having non-Chinese in the management of Bytedance could help but I can't imagine they could have a truly independent board if Bytedance is majority owned by Chinese citizens.