China is moving to take “golden shares” in local units of Alibaba and Tencent as Beijng formalises a greater role in overseeing the country’s powerful tech groups.
The Chinese government has responded to a stuttering economy by backing away from the tough fines and sanctions that were a hallmark of its campaign to rein in the country’s largest tech groups, but which also scared off foreign investors.
While the heavy-handed 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 the Communist party with a mechanism to remain deeply involved in their businesses, particularly the content they broadcast to millions of Chinese people.
The stakes, usually involving a 1 per cent share of internet groups’ key entities, are akin to “golden shares” as they come with 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 exert influence over private news and content companies.
That was the aim of China’s internet regulator when it took a stake in an Alibaba unit last week, according to two people involved in the matter. An entity under the state investment fund set up by the Cyberspace Administration of China (CAC) acquired a 1 per cent share of an Alibaba subsidiary, Guangzhou Lujiao Information Technology, on January 4, according to Chinese business records.
CAC took the stake to tighten control over content at the ecommerce giant’s streaming video unit Youku and web browser UCWeb, the people said. As part of the deal the unit also appointed a new board member, Zhou Mo. CAC has a mid-level official with the same name.
It is unclear what rights the government will gain in many of the deals. China’s media regulator in 2016 advised state groups taking special management shares to demand at least a 1 per cent stake, a board seat and the right to review content.
The specifics of the government’s plan to take golden shares in Tencent remain under discussion, but will involve a stake in one of the group’s main China operating subsidiaries, three separate people briefed on the matter 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 government entity from its home base of Shenzhen to take the shares, instead of bringing in the Beijing-based state investment fund that took the stakes in the units of Alibaba, ByteDance and Weibo, China’s version of Twitter.
Chinese officials have used a variety of state groups to take the holdings. Executives at Nasdaq-listed streaming service Bilibili are pushing for a state entity in Shanghai to take shares in one of its subsidiaries, two people briefed on the matter said. When the government took a 1 per cent stake…
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