China has reportedly acquired minority stakes in the country’s big tech firms Tencent Holdings and Alibaba Group as it plans to tighten its oversight on online content.

This comes after the government previously snapped up shares from TikTok’s owner ByteDance.

report by Financial Times citing sources close to the transactions, reveals Chinese government is buying a small equity stake called ‘golden shares’ in the big tech firms. According to the report, this translates to 1% stake in each of the tech companies’ key subsidiaries.

The report says an investment fund connected to China’s regulator took a stake in one of Alibaba’s subsidiaries, Guangzhou Lujiao Information Technology, in a deal finalized on January 4.

A similar deal is currently in the works at Tencent, which is the parent company for WeChat – China’s biggest social media platform.

Golden shares tactic

FASTCOMPANY says the deals are a sign that Xi might soon relax the iron crackdown that has constrained China’s private companies over the past few years, in an effort to resuscitate a stifled economy.

The ‘golden shares’ tactic would allow state to stay close to the levers of power within these companies as their businesses roar back to life.

According to FASTCOMPANY, the term ‘golden share’ was devised to describe the practice of state investment funds taking up small but powerful stakes in private internet companies like ByteDance and Weibo.

This will allow Chinese Communist Party (CCP) to appoint board directors and exert influence over business decisions.

In April 2021, when state groups took a golden share in ByteDance, they won the right to nominate one of the company’s three board directors. The position was taken by Wu Shugang, a hawkish CCP official.

Within the board, Shugang holds unilateral control over content that goes out of ByteDance’s two major platforms – Douyin, TikTok’s sister app and Jinni Toutiao, a news app. He is sometimes referred to as ByteDance’s “editor-in-chief.”

China resolute to have hand in techs cookie jar

Financial Times also says the move allows the government to remain involved in the businesses.

They cite people close to the matter who said the government could buy shareholding in one of Tencent Holdings’ main operating subsidiary in that country, that is Tencent Music Entertainment (TME).

TME operates a number of streaming services including QQ Music, Kugou Music and Kuwo Music.

Another source close to Tencent also told Financial Times that the company was pushing for a government entity from Shenzhen to buy the shares as opposed to having a Beijing based state investment fund as an investor. That investor supposedly bought shares in Alibaba and Bytedance as well as China’s version of Twitter – Weibo.

According to Statista, TME was the dominant player in China’s music streaming space in 2021, topping the country’s Mobile’s Migu, NetEase Cloud Music and Xiaomi’s MIUI Music. The company had 85.3 million paying music users during the third quarter of 2022, representing a 19.8% growth year on year.

It achieved a $3.43 billion revenue for the three months to September 30, 2022 on solid music subscriptions.

Bilibili, a video sharing platform often referred to as China’s version of Netflix is also pushing for a government entity in Shanghai to acquire shares in one of its subsidiaries, according to two sources that spoke to Financial Times.

This follows Beijing’s move to take a slice of ByteDance, according to reports in 2021 and 2022.

In August last year, The Information also reported that the government acquired a 1% stake and took a board seat in ByteDance unit Beinjing ByteDance Technology.

The Standard reported two months ago that China-owned media firms bought stakes in TikTok’s Chinese version Douyin and its rival Kuaishou, which is backed by Tencent.

China’s internet watchdog also took 1% slice in a unit of Alibaba, Guangshou Lujiao Information Technology earlier this month. The move was meant to tighten control over the company’s streaming video unit Youku and web browser UCWeb, according to two sources close to the deal, as cited by the Financial Times.

Changes bleed the sector

The developments come as the Chinese government is wrapping up its two-year crackdown on the tech sector.

An official from China’s central bank – Guo Shuqing told Xinhua News Agency in an interview earlier this month that government has finished its campaign to rectify 14 internet platforms with “a few remaining problems being resolved promptly.”

The country’s crackdown on the sector has resulted in changes in the industry. For example, it led to Alibaba founder Jack Ma giving up control over the company’s fintech affiliate Ant Group. This also led to a record fine on Alibaba over its dominance in the tech sector while Tencent shut down its video game streaming platform – Penguin Esports.

The music industry was not spared neither. TME and rival NetEase Cloud Music gave up exclusive deals with global labels in China. Cloud Music was also forced to halt its Hong Kong Initial Public Offering (IPO) plan in 2021 due to government’s tight oversight.

This article is originally from MetaNews.


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