China is about to take “golden stakes” in local units of Alibaba and Tencent as Beijing formalizes a bigger role in overseeing the country’s powerful tech giants.
The Chinese government has responded to a faltering economy by backing down from the harsh fines and sanctions that have been a hallmark of its campaign to rein in the country’s biggest tech companies but have also deterred foreign investors.
As the crackdown has ebbed, the government is increasingly snapping up 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 remain deeply involved in its business, particularly the content it broadcasts to millions of Chinese.
The holdings, which typically include a 1 percent stake in the major Internet giants, are similar to “golden stocks” in that they carry privileges over certain business decisions.
In China, the holdings are known as “special management shares” and have been a common tool used by the state to exert influence over private news and content companies since 2015.
That was the goal of China’s internet regulator when it took a stake in an Alibaba entity last week, according to two people involved in the matter. According to Chinese business records, a company belonging to the state investment fund set up by the Cyberspace Administration of China (CAC) on Jan. 4 acquired a 1 percent stake in an Alibaba subsidiary in Guangzhou.
CAC took over the stake to increase control over the content of the e-commerce giant’s streaming video unit Youku and web browser UCWeb, the people said. As part of the agreement, the unit also appointed a new board member, Zhou Mo. CAC has a mid-level official of the same name.
It’s unclear what rights the government will get in many of the deals. China’s media regulator in 2016 advised state groups that take special management stakes to require at least a 1 percent stake, a seat on the board and the right to review content.
The details of the government’s plan to acquire Tencent’s gold shares are still being debated, but will involve a stake in one of the group’s main subsidiaries operating in China, said three different people briefed on the matter at Tencent.
“The state is not going away, that’s the trend for the future,” said one of the people.
Another person close to Tencent said the group is pushing for a government agency to take over the shares from its home base of Shenzhen, rather than bringing in the Beijing-based state investment fund, which took over the stakes in Alibaba, ByteDance and Weibo’s units. China’s version of Twitter.
Chinese officials have deployed a variety of state groups to take over the holdings. Executives at Nasdaq-listed streaming service Bilibili are pushing for a Shanghai state entity to take a stake in one of its subsidiaries, two people with knowledge of the matter said. When the government bought a 1 percent stake in short video maker Kuaishou’s main onshore business last year, it approached Beijing’s state radio and television station.
Documents viewed by the Financial Times detail how ByteDance’s golden share arrangement works. They show how in April 2021 the government tightened its grip on the main Chinese entity of the TikTok parent company. A CAC-affiliated fund joined two other state-owned groups to pay Rmb2mn for a 1 percent stake in the entity called Beijing ByteDance Technology.
The state groups took over the shares through an organization called WangTouZhongwen (Beijing) Technology, which was given the right to nominate one of Beijing ByteDance’s three directors. Communist Party official Wu Shugang was appointed to the board. Wu headed the CAC’s online comment monitoring department for several years, and his tenure has included visiting companies across China to conduct study sessions on the Party and President Xi Jinping.
He drew attention a decade ago for saying, “I have only one wish — that one day I can cut off the dog’s head” in a tweet to his personal Weibo account from liberal Chinese with Western values. “Let the Chinese traitors who preach so-called ‘human rights and freedom’ go to hell!!” he added.
In his role as director of ByteDance’s main Chinese entity, Wu has a say in “business strategy and investment plans,” merger or acquisition deals, profit sharing, and voting on the group’s top three executives and their compensation packages, according to corporate charter shows.
While Beijing ByteDance’s other two directors may overrule Wu on some issues, the company’s charter shows that Wu was given the power to control content on ByteDance’s media platforms in China. Those platforms included news aggregator app Jinri Toutiao and TikTok’s sister app Douyin, with Wu getting the right to appoint the group’s chief censor, known as the “editor-in-chief” among Chinese internet groups.
“The appointment or dismissal of the editor-in-chief requires the consent of [WangTouZhongwen’s] Managing Director,” according to the company’s Articles of Association. The documents show that Wu was also given the right to chair a “Content Security Committee” set up within Beijing ByteDance, or alternatively to appoint the committee’s chairman. Board meetings must be held at least quarterly or whenever Wu proposes.
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Last year, executives at TikTok’s parent company changed the Beijing unit’s name to Douyin Information Service and removed “ByteDance” from its title to distance its China operations and Wu from its global products, two people keeping track of the matter said became.
ByteDance said the entity owns licenses to Douyin and Toutiao and has “no ownership, visibility or influence over 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