Bei­jing pushes for stake in China’s big tech firms

Govern­ment reg­u­la­tors have dis­cussed stakes in Ten­cent, Weibo and an Alibaba sub­sidiary

Business Standard - - FRONT PAGE - LI YUAN

The Chi­nese govern­ment is push­ing some of its big­gest tech com­pa­nies to of­fer the state a stake in them and a di­rect role in cor­po­rate de­ci­sions. Wary of the in­creas­ing power of pri­vate busi­nesses, in­ter­net reg­u­la­tors have dis­cussed tak­ing a per cent stake within so­cial-me­dia pow­ers Ten­cent and Weibo and with Alibaba’s Youku Tu­dou, ac­cord­ing to sources.

The Chi­nese govern­ment is push­ing some of its big­gest tech com­pa­nies—in­clud­ing Ten­cent, Weibo and a unit of Alibaba—to of­fer the state a stake in them and a di­rect role in cor­po­rate de­ci­sions.

Wary of the in­creas­ing power of pri­vate busi­nesses, in­ter­net reg­u­la­tors have dis­cussed tak­ing 1% stakes with so­cial-me­dia pow­ers Ten­cent Hold­ings Ltd. and Weibo Corp. and with Youku Tu­dou, a YouTube-like video plat­form owned by e-com­merce ti­tan Alibaba Group Hold­ing Ltd., ac­cord­ing to peo­ple close to the com­pa­nies.

While the au­thor­i­tar­ian govern­ment al­ready ex­erts heavy sway over busi­nesses through reg­u­la­tion, a man­age­ment role would give Bei­jing a di­rect hand in in­no­va­tive com­pa­nies that ser­vice hun­dreds of mil­lions of Chi­nese.

The big­gest of th­ese com­pa­nies have ex­panded beyond their orig­i­nal niches into fi­nance, health care and trans­porta­tion, col­lect­ing data that give them un­par­al­leled in­sights into peo­ple’s lives. Some com­pa­nies pri­vately say they are wary of the move.

The new steps come as pres­sure on China’s tech com­pa­nies is ris­ing. Reg­u­la­tors last month fined so­cial-me­dia plat­forms owned by Ten­cent, Weibo and Baidu for host­ing pornog­ra­phy, fake news and other banned con­tent. Af­ter the Com­mu­nist Party news­pa­per Peo­ple’s Daily at­tacked Ten­cent’s top game, “Honor of Kings,” for be­ing too ad­dic­tive for younger Chi­nese, the com­pany’s share price fell 4% in one day, wip­ing $14 bil­lion off its mar­ket value.

An ini­tial rollout of what the govern­ment calls “spe­cial man­age­ment shares” started with two in­ter­net me­dia star­tups. Reg­u­la­tors and the Peo­ple’s Daily web­site are tak­ing stakes of less than 2% in mo­bile news plat­form Yid­ian Zixun and Bei­jing Tiexue Tech Co., op­er­a­tor of a pa­tri­otic news site.

In ex­change, the in­vestors get to ap­point a govern­ment of­fi­cial to the com­pa­nies’ boards and have a say over their op­er­a­tions, peo­ple fa­mil­iar with the deals said.

In­ter­net reg­u­la­tor Cy­berspace Ad­min­is­tra­tion, a chief force in the govern­ment’s man­age­ment share plans and a stake­holder in Yid­ian Zixun, re­ferred queries to the Pro­pa­ganda Depart­ment, the Com­mu­nist Party’s press of­fice, which didn’t re­spond to a re­quest for com­ment. Nor did two other in­ter­net reg­u­la­tors.

Yid­ian Zixun and Bei­jing Tiexue de­clined to com­ment. Ten­cent, Weibo and Alibaba didn’t re­spond to re­quests for com­ment.

The Com­mu­nist Party ex­pro­pri­ated pri­vate busi­nesses in the 1950s. Though the ban on pri­vate own­er­ship was lifted in the 1980s, the re­la­tion­ship between busi­nesses and Bei­jing re­mains fraught. Still, the party gave pri­vate en­ter­prises some space to pros­per as the lead­er­ship be­lieved they needed eco­nomic growth to jus­tify their le­git­i­macy. Then Xi Jin­ping took power five years ago.

Pres­i­dent Xi has fos­tered a more force­ful role for the party in so­ci­ety, and the govern­ment has in­ter­vened in mar­kets and busi­nesses.

Bei­jing this sum­mer clamped down on large pri­vate con­glom­er­ates push­ing a wave of ag­gres­sive deal mak­ing over­seas, lead­ing to the de­ten­tion of at least one Chi­nese ty­coon and caus­ing some com­pa­nies to scrap deals and sell as­sets.

A doc­u­ment re­leased by China’s lead­er­ship last month to en­cour­age en­trepreneur­ship in­structs en­trepreneurs to put pa­tri­o­tism first and fol­low the party’s guid­ance. At Mr. Xi’s urg­ing, a cam­paign is un­der way to set up party units in pri­vate com­pa­nies.

Tech has flour­ished in China over the past decades, in part, in­dus­try ex­ec­u­tives say, be­cause the sec­tor was new and seen as too risky by state com­pa­nies and the govern­ment, which, in a way, shielded it from too much govern­ment reg­u­la­tion and crack­downs.

As their com­pa­nies’ reach has grown, tech en­trepreneurs have worked to re­tain room to ma­neu­ver while main­tain­ing Bei­jing’s fa­vor.

Alibaba founder Jack Ma, one of China’s rich­est men, is set­ting up a foun­da­tion with a goal of rais­ing 100 bil­lion yuan ($15.2 bil­lion) from fel­low en­trepreneurs to cre­ate op­por­tu­ni­ties for the poor—a pri­or­ity for Pres­i­dent Xi.

“It’s like spend­ing 100 mil­lion yuan to buy a talisman,” says a busi­ness­man who knows Mr. Ma.

Alibaba de­clined to com­ment on the foun­da­tion.

The usu­ally press-shy co­founder of Ten­cent, Pony Ma, also took up a govern­ment cause this year, ad­vo­cat­ing for south­ern China’s greater eco­nomic in­te­gra­tion with Hong Kong, the for­mer Bri­tish colony where a protest move­ment has chal­lenged Bei­jing’s rule.

Alibaba, Ten­cent and search engine com­pany Baidu Inc., along with oth­ers, agreed this sum­mer to in­vest $11.7 bil­lion in wire­less car­rier China Uni­com, fur­ther­ing a govern­ment goal of bring­ing pri­vate-sec­tor money into state com­pa­nies.

Bei­jing be­gan float­ing the idea of spe­cial man­age­ment shares in the spring of 2016, cir­cu­lat­ing a draft pro­posal sug­gest­ing a 1% govern­ment stake in ex­change for board rep­re­sen­ta­tion. Some com­pa­nies thought the plan would fiz­zle, in part be­cause of the po­ten­tial for share­holder law­suits and the high cost of shares. A 1% stake in Hong Kong-listed Ten­cent, for ex­am­ple, would cost over $4 bil­lion. Oth­ers pri­vately wor­ried that bring­ing the govern­ment on­board would jeop­ar­dize their rel­a­tive in­de­pen­dence and af­fect in­no­va­tion.

“This is the thing that keeps Pony up at night,” says a Ten­cent ex­ec­u­tive about Mr. Ma, the com­pany’s chief ex­ec­u­tive.

Peo­, the web­site of Peo­ple’s Daily, is pay­ing 7.2 mil­lion yuan for a 1.5% stake in Bei­jing Tiexue, op­er­a­tor of the na­tion­al­is­tic mil­i­tary por­tal and fo­rum site, ac­cord­ing to reg­u­la­tory fil­ings. Peo­ will ap­point a board mem­ber to and will re­view all con­tent on the site, a ser­vice for which will pay, ac­cord­ing to the fil­ings.

“Ev­ery com­pany will have to do it even­tu­ally, so the ear­lier you get in, the more com­pet­i­tive ad­van­tage you’ll gain,” says a per­son fa­mil­iar with the deal. The per­son says the ar­range­ment should help Bei­jing Tiexue se­cure “all kinds of li­censes.”

News app Yid­ian Zixun, which is owned by New York-listed Phoenix New Me­dia and smart­phone mak­ers Xiaomi Corp. and Oppo Elec­tron­ics Corp., agreed to govern­ment in­vest­ment to se­cure li­censes for video con­tent, ac­cord­ing to peo­ple fa­mil­iar with the mat­ter.

Bei­jing city’s in­ter­net reg­u­la­tor and an in­vest­ment fund jointly started by the Fi­nance Min­istry and Cy­berspace Ad­min­is­tra­tion paid 70 mil­lion yuan for a 1% stake, ac­cord­ing to one of the peo­ple. A mi­dlevel of­fi­cial from the Bei­jing in­ter­net reg­u­la­tor now works as a spe­cial board mem­ber out of Yid­ian Zixun’s Bei­jing of­fice with veto rights over the plat­form’s editorial de­ci­sions, ac­cord­ing to the per­son.

Th­ese deals will likely pro­vide a tem­plate for fu­ture deals, says a per­son who sits on the boards of sev­eral me­dia com­pa­nies and was con­sulted by the govern­ment on the man­age­ment share plan.

Small star­tups will get di­rect in­vest­ment from state-owned firms, while larger deals will be done by govern­ment-backed funds. For the big­gest com­pa­nies, he says, it is pos­si­ble that they will “do­nate” shares to the govern­ment or govern­ment funds.

Source: The Wall Street Jour­nal


A man walks in front of Ten­cent head­quar­ters in Shen­zhen. In­ter­net reg­u­la­tors are dis­cussing tak­ing 1% stakes with so­cial-me­dia pow­ers like Ten­cent Hold­ings

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