China is moving to buy “golden stakes” in local units of Alibaba and Tencent as Beijing formalizes a greater role in controlling the country’s powerful tech groups.
China’s government has responded to a stuttering economy by backing away from stiff fines and sanctions that have also scared away foreign investors, a hallmark of its campaign to rein in the country’s biggest tech groups.
While strong crackdowns have eased, the government is increasingly seizing small equity stakes in the local operations of big tech companies, as it recently did with TikTok owner ByteDance.
This provides a mechanism for the Communist party to be deeply involved in their business, especially in the content they broadcast to millions of Chinese.
The stakes, which usually comprise 1 percent of the main entities of Internet groups, are similar to “golden shares” because they have special rights over certain business decisions.
Within China, the stakes are known as “special management shares” and since 2015 have become a common tool used by the state to influence private news and content companies.
That’s what China’s internet regulator had in mind when it bought a stake in the Alibaba unit last week, according to two people familiar with the matter. An entity under a state investment fund set up by the Cyberspace Administration of China (CAC) bought a 1 percent stake in Alibaba’s Guangzhou subsidiary on Jan. 4, according to Chinese business records.
CAC has taken stakes in e-commerce giant Youku’s streaming video unit and web browser UCWeb to tighten content controls, the people said. As part of the deal, the division also appointed Zhou Mo as a new board member. CAC has a mid-level officer with the same name.
It is unclear what rights the government will get in many of the deals. China’s media regulator recommended in 2016 that state groups taking special management stakes require at least a 1 percent stake, board seats and rights to review content.
The specifics of the government’s plan to buy the gold stake in Tencent are still being discussed, but would include a stake in one of the group’s main subsidiaries operating in China, three separate people at Tencent said.
“The state is not going away, this is the trend for the future,” said one of the people.
Another person close to Tencent said the group was pushing for a state-owned entity to buy shares from its home base in Shenzhen, rather than bringing in a Beijing-based state investment fund that has taken stakes in Alibaba, ByteDance and Weibo units. The Chinese version of Twitter.
Chinese officials have used various state groups to seize holdings. Executives at Nasdaq-listed streaming service Bilibili are trying to buy a stake in a subsidiary of a Shanghai-based state-owned entity, two people briefed on the matter said. When the government bought a 1 percent stake in the parent company of short video producer Kuaishou last year, it became the state-owned Beijing Radio and Television Station.
Documents seen by the Financial Times detail how the golden share deal worked at ByteDance. They show how the government in April 2021 tightened its grip on TikTok’s parent company’s main Chinese business. A CAC-linked fund joined two other state-owned groups in paying Rmb2mn for a 1 percent stake in a unit called Beijing ByteDance Technology.
State groups bought the shares through a venture called WangTouZhongwen (Beijing) Technology, which won the right to nominate one of Beijing ByteDance’s three directors. Communist Party official Wu Shugang was appointed to the board. Wu has headed the CAC’s unit that monitors online comments for several years and, as part of the job, has visited companies around China to lead learning sessions about the party and President Xi Jinping.
In a tweet he wrote on his personal Weibo account ten years ago, he drew attention when liberal Chinese people with Western values said, “I have only one dream – one day I can cut off a dog’s head.” Let the Chinese traitors who preach the so-called “human rights and freedoms” go to hell!” he added.
As director of ByteDance’s main China unit, Wu has a say over “business strategy and investment plans”, any mergers or acquisitions, profit sharing and voting on the group’s top three executives, as well as their remuneration packages. the company’s charter shows.
While the other two directors of Beijing ByteDance may hold sway over Wu on some issues, the company’s bylaws indicate that Wu is empowered to control content on ByteDance’s media platforms in China. These platforms included news aggregator app Jinri Toutiao and TikTok’s sister app Douyin, and Wu was given the right to appoint the group’s chief censor, known in Chinese internet groups as “editor-in-chief”.
“The approval of the editor-in-chief is necessary for his appointment or dismissal [WangTouZhongwen’s] director,” the company’s articles of association state. The documents show that Wu also has the right to chair a “content security committee” established within Beijing ByteDance, or alternatively to appoint the chairperson of the committee. Meetings of the Board shall be held at least quarterly or when proposed by Wu.
Last year, executives at TikTok’s parent company renamed the Beijing unit Douyin Information Services, removing the “ByteDance” name from its title to distance its Chinese operations and Wu from its global products, two people briefed on the matter said.
ByteDance said the division holds the licenses for Douyin and Toutiao and has “no ownership, visibility or access to ByteDance’s global operations.”
Tencent and Kuaishou declined to comment. Alibaba, Bilibili and Weibo did not respond to multiple requests for comment. CAC did not respond to a faxed request for comment.
Additional reporting by Nian Liu in Beijing