China seeks stakes in online firms
SOME ambitious Chinese online media companies have won backing from a very powerful investor: the Chinese government itself. Two small companies – a militarynews site called Tiexue and a news aggregator called Zaker – have recently offered stakes to affiliates of the Chinese government or Communist Party, according to company documents and official media. The deals are part of a government drive to exercise oversight over media companies through special shares that grant their holders outsize influence over management and content.
The two firms are relatively small. And Chinese cyberspace regulators have been busy tightening controls in more forceful ways over the past few months, before an important Communist Party gathering set to begin this week.
But the deals struck with the two online news companies could be a sign of things to come. The news media in China is becoming more difficult to police as readers and outlets migrate online and onto social media. Experts said that if the deals work, the authorities could eventually ask for stakes at some of the country’s largest and most innovative companies in order to solidify influence over their services.
The Chinese authorities traditionally have issued guidelines and outright orders to major internet companies about what they would like to see and not see online, said Mark Natkin, managing director of Marbridge Consulting, a tech advisory firm in Beijing.
“As these companies have grown both in size and influence,” he said, “that model is no longer comfortable for the authorities.”
The Wall Street Journal, citing anonymous sources, reported last week that Chinese internet regulators have discussed taking 1 percent stakes in Tencent Holdings, maker of the popular WeChat messaging service, and Youku Tudou, a video platform owned by the Alibaba Group, the e-commerce giant.
Both companies and China’s top cyberspace regulator declined to comment.
In China as elsewhere, internet and social-media platforms have become an increasingly popular source of news as smartphones have come to permeate every aspect of daily life. According to government statistics, more than four-fifths of China’s more than 730 million internet users obtained some news online last year. More than 570 million people used news apps, up nearly one-fifth over the previous year.
But the information they get is heavily censored – and this year, it has been censored more still. The authorities have further curtailed online activity before this month’s Communist Party congress, which will probably lead to some leadership shuffling. Traditionally, Chinese officials have prized stability above all else before such meetings.
In recent months, many virtual pri- vate networks, which allow users to vault China’s Great Firewall to access blocked material, have been disrupted or shut down. Two popular sites hosting foreign television shows and movies were wiped clean. The clampdown even affected celebrity-gossip blogs and entertainment-related socialmedia accounts, dozens of which were shuttered after a call from regulators in June to create a “healthy, uplifting environment for mainstream opinion”.
The recent share deals could take Beijing’s involvement in online media a step further.
The State Administration of Press, Publication, Radio, Film and Television, a powerful Chinese media regulator, recommended last year that the government take small but significant stakes in media companies. Called “special management shares”, these would represent a stake of as little as 1 percent. Still, they would give Chinese officials seats on company boards and the right to review media content.
The Chinese government’s stakes in Tiexue and Zaker are held through such shares, according to documents and the official news media.
Tiexue carries articles on military affairs and history, often nationalistic in tone. On a recent afternoon, the headlines on the Tiexue home page included Danger Approaching! Japan’s Oil Reserves Are the World’s Largest! and Shocking Reversal! China Leads America by 20 Years in This Military Technology. (The latter pointed to an article about China’s progress in quantum communications, a way of transmitting information securely, and in advanced weaponry.)
Regulatory filings from August indi- cate that People.cn, the online affiliate of the People’s Daily newspaper, is paying $1.1 million for a 1.5 percent stake in Tiexue. People.cn can then recommend a board member and review Tiexue content, the filings said. The People’s Daily is the official mouthpiece of the Communist Party.
A spokeswoman for Tiexue declined to comment.
Zaker, according to a January article in the official Chinese media, recently closed a funding round with a group of investors including Shenzhen Press Group, a state-owned media company in the southern city of Shenzhen. The article described the deal as a “trial” of the special management share structure, though it did not state how or whether Shenzhen Press Group would influence Zaker’s management and content.
A Zaker representative declined to comment. Shenzhen Press Group couldn’t be reached for comment.
Teng Bingsheng, a Shanghai-based professor at Cheung Kong Graduate School of Business, said a resurgence of economic nationalism in China is fueling concerns about the ownership of the country’s technology companies, whose major shareholders sometimes include international privateequity firms.
“People look at their equity structure and they say, ‘Wow, this is actually not a Chinese company because their largest shareholders are not Chinese’,” Teng said.
The government’s stakes in tech firms may be small at first, he said. “But once the door is opened, eventually they may ask for more.”