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China wants to take ‘golden shares’ in units of Alibaba and Tencent

China is moving to take “golden shares” in the local units of Alibaba and Tencent, as Beijing formalizes a greater role in overseeing the country’s powerful tech groups.

China’s government has responded to the faltering economy by abandoning tough fines and sanctions that have been a hallmark of its campaign to rein in the country’s biggest tech groups, but which have also scared off foreign investors.

While the fierce fighting has subsided, the government is increasingly taking small stakes in the local operations of big tech companies, as it recently did with TikTok owner BiteDance.

This gives the Communist Party a mechanism to remain deeply involved in its affairs, especially in the content it broadcasts to millions of Chinese.

The stakes, which typically include a 1 percent stake in key Internet group entities, are similar to “golden shares” in that they come with special rights over certain business decisions.

In China, the stakes are known as “special management actions” and since 2015 have become a common tool used by the state to exert influence over private news and content companies.

That was the goal of China’s internet regulator when it took a stake in the Alibaba unit last week, according to two people involved in 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 a stake in tightening content controls at e-commerce giant YouTube’s streaming video unit 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 officer with the same name.

It is unclear what rights the government will get in many of the deals. In 2016, China’s media regulator advised state-owned groups taking special management actions to require at least a 1 percent stake, a board seat and the right to review content.

The specifics of the government’s plan to take over Tencent’s golden shares remain under discussion, but will include a stake in one of the group’s main subsidiaries in China, three separate people briefed on the matter at Tencent said.

“The state is not going away, this is a trend for the future,” said one of the people.

Another person close to Tencent said the group wanted a government entity from its Shenzhen home base to take over the shares, rather than bring in a Beijing-based state investment fund that has taken stakes in units of Alibaba, BiteDance and Weibo, China’s version of Twitter.

Chinese officials used various state groups to seize property. Executives at Nasdaq-listed streaming service Bilibili are seeking a Shanghai-based state-owned entity to take a stake in one of its subsidiaries, two people briefed on the matter said. When the government took a 1 percent stake in key mainland short video maker Kuaishou last year, it turned to Beijing’s state-run radio and television station.

Documents seen by the Financial Times detail how the gold share arrangement works at BiteDance. They show how the government tightened control over the main Chinese entity of parent company TikTok in April 2021. A CAC-linked fund joined two other state-owned groups to pay Rmb2 million for a 1 percent stake in the unit, called Beijing BiteDance Technology.

The state-owned groups took the shares through an entity called WangTouZhongwen (Beijing) Technology, which was given the right to nominate one of the three directors of Beijing BiteDance. Communist Party official Wu Shugang was appointed to the board. Wu headed the CAC’s department that monitored online comments for several years and as part of his job visited companies across China to conduct study sessions on the party and President Xi Jinping.

He gained attention a decade ago by saying, “I have only one wish — that one day I can cut off a dog’s head” to liberal Chinese people with Western values, in a tweet on his personal Weibo account. “Let the Chinese traitors who preach so-called ‘human rights and freedoms’ go to hell!” he added.

In his role as director of BiteDance’s main China unit, Wu has the right to vote on its “business strategy and investment plans”, any merger or acquisition, profit distribution and vote on the group’s top three executives as well as their compensation packages, the company’s charter shows .

While the other two directors of Beijing BiteDance can override Wu on some issues, the company’s bylaws show that Wu has been given the power to control content on BiteDance’s media platforms in China. These platforms included news aggregator app Jinri Toutiao and TikTok’s sister app Douiin, with Wu given the right to name the group’s chief censor, known in Chinese internet groups as “editor-in-chief”.

“The appointment or dismissal of the editor-in-chief requires approval.” [WangTouZhongwen’s] director,” the company’s articles of association state. The documents show that Wu was also given the right to chair a “content security committee” set up within Beijing BiteDance, or alternatively to appoint the chairman of the committee. Board meetings are held at least quarterly or whenever Vu suggests.

Last year, executives at parent company TikTok changed the name of the Beijing unit to Douiin Information Service, removing “BiteDance” from its title in an effort to distance operations in China and Wu from its global products, two people briefed on the matter said.

BiteDance said the unit held the licenses for Douiin and Toutiao and had “no ownership, visibility or input into BiteDance’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

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