Beijing Wants a Slice of China’s Online Giants

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Concerns over the immense clout of tech companies in the online era has prompted the Chinese government to push for equity stakes in the country’s leading Internet companies.

Sources close to companies told the Wall Street Journal that the Chinese government has proposed the acquisition of a 1% equity stake in a slew of domestic tech giants, including Tencent Holdings and Weibo Corp – two of the country’s leading social media platforms, as well as Alibaba Group’s video sharing platform Youku Tudou.

The Chinese government is already experimenting with partial state-ownership of tech companies using “special management shares” in a pair of fledgling online media firms.

The People’s Daily and government regulators will acquire equity stakes of less than 2% in Yidian Zixun, a mobile news site, and Beijing Tiexue Tech Co., which runs a military news site with a nationalistic tilt.

Regulatory filings indicate that People.cn will obtain a 1.5% stake in Beijing Tiexue for 7.2 million yuan, and acquire the right to appoint a board member, as well as receive payment from Tiexue.cn for reviewing its content.

The Chinese government’s Cyberspace Administration and an investment fund have obtained a 1% stake in Yidian Zixun, owned by US-listed Phoenix New Media and smartphone manufacturer Xiaomi Group, for a consideration of 70 million yuan.

Sources said to the Journal that the government will provide licenses for video content in exchange for the investment, while also obtaining the right to appoint a special board member and the ability to veto editorial decisions.

The idea of special management shares was first mooted last year, with the release of a draft document proposing that the government obtain board representation in exchange for a 1% equity investment.

Should Beijing continue to acquire modest equity stakes in China’s online companies it will add even further to the heavy control they already exert via standard regulatory means.

Chinese regulators are already stepping up pressure on tech companies due to concern over their immense and rising influence, as they fast expand into a multitude of areas such as Fintech, mobile payments, health and transportation, and amass vast troves of data on the general population.

In September regulators dispensed fines to social-media platforms opted by Baidu, Tencent and Weibo for harbouring banned content including pornography, while Tencent has come under fire from The People’s Daily for producing addictive computer games, triggering a 4% plunge in share prices.

China’s top Internet companies have emerged as some of country’s biggest corporate concerns within the space of mere decades.

According to figures from WSJ Market Data Group the market capitalisations of Alibaba and Tencent stand at $467 billion and $428 billion respectively, as compared to the $323 billion market capitalisation of Industrial & Commercial Bank of China – the world’s biggest bank in terms of assets.

Instead of seeking to forcefully suppress or engage in the mass expropriation of these Internet giants, the Chinese government appears more intent upon collaborating with them and co-opting their vast influence, particularly as a part of mixed-ownership reforms of China’s huge state-owned enterprise sector.

Alibaba, Baidu and Tencent recently agreed to invest a total of $11.7 billion in the government’s telecommunications giant China Unicom, as part of mixed-ownership SOE reforms that seek to shore up efficiency via the incorporation of private capital.

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