China is moving to acquire the “golden shares” in the units of Alibaba and Tencent

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

The Chinese government has responded to the faltering economy by rolling back the draconian fines and penalties that have been a hallmark of its campaign to rein in the country’s largest tech groups, and which have also scared away foreign investors.

As the harsh crackdown subsides, the government is increasingly taking small stakes in the domestic operations of big tech companies, as it recently did with the owner of TikTok. Byte Dance.

This provides the Communist Party with a mechanism to stay deeply involved in its business, particularly the content it broadcasts to millions of Chinese.

The bets, which usually involve 1 percent of the major entities of Internet groups, are like “golden shares” because they come with special rights over certain business decisions.

The bets within China are known as “private management equity” and since 2015 have become a popular tool for the state to exert influence over private news and content companies.

This was the goal of the Chinese internet regulator when it bought a stake in Ali Baba last week, according to two people involved in the matter. An entity under the state investment fund set up by the China Cyberspace Administration (CAC) acquired a 1 percent stake in an Alibaba subsidiary in Guangzhou on January 4, according to Chinese business records.

People said CAC acquired the stake to tighten control over content in e-commerce giant Youku’s video streaming unit and web browser UCWeb. As part of the deal, the unit also appointed a new board member, Zhou Mo. CAC has a mid-level official with the same name.

It is unclear what rights the government will gain in many of the deals. China’s media regulator in 2016 advised government groups acquiring private management shares to claim at least a 1 percent stake, a seat on the board of directors, and the right to review content.

Details of the government’s plan to acquire Tencent’s gold shares are still being discussed, but it would include a stake in one of the group’s main operating subsidiaries in China, according to three separate people briefed on the matter at Tencent.

One person said: “The state will not go away, this is the trend towards the future.”

Another person close to Tencent said the group was lobbying for a government entity from its main base in Shenzhen to take over shares, rather than bringing in the Beijing-based state investment fund which has taken stakes in units of Alibaba, ByteDance and Weibo, the Chinese version of Twitter.

Chinese officials used a variety of government groups to seize holdings. Executives of the Nasdaq-listed streaming service have been lobbying for a Shanghai government entity to take shares in one of its subsidiaries, two people familiar with the matter said. When the government took a 1 percent stake in short-video maker Kuaishou’s main domestic company last year, it morphed into the state-owned Beijing Radio and Television station.

Documents seen by the Financial Times detail how the ByteDance Gold Share arrangement works. They show how the government tightened its grip on TikTok’s main Chinese entity in April 2021. A CAC-linked fund joined two other government groups to pay 2 million renminbi for a 1 percent stake in the unit, called Beijing ByteDance Technology.

State groups acquired the shares through an entity called WangTouZhongwen (Beijing) Technology, which won the right to nominate one of the three directors of Beijing ByteDance. Communist Party official Wu Shuugang was appointed to the board of directors. Wu headed the CAC’s online commentary department for several years, and as part of the job he visited companies across China to lead study sessions on the party and President Xi Jinping.

He attracted attention a decade ago for saying, “I only have one wish – that one day I can cut off the 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 freedom’ go to hell!!” he added.

In his role as director of ByteDance’s main Chinese unit, Wu has a say in “business strategy and investment plans,” any merger or acquisition, dividend allocation, and votes on the group’s three top executives as well as their bonus packages, the company’s charter offerings.

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

Appointment or dismissal of the chief editor requires the consent of the [WangTouZhongwen’s] Director of the “State Regulations Company.” Documents show that Wu has also been given the right to chair the “Content Security Committee” set up within Beijing ByteDance, or alternatively appoint the chairman of the committee. Board meetings are held at least every three months or as often as Wu suggests.

Last year, executives at parent company TikTok renamed the Beijing unit to Douyin Information Service, removing “ByteDance” from its title in an effort to distance China and Wu’s operations from its global products, two people familiar with the matter said.

ByteDance said that the unit holds licenses to Douyin and Toutiao and that it “has no ownership, vision, or input into ByteDance’s global operations.”

Tencent and Kuishu 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