Beijing’s ByteDance play: the Party is just getting started

by Nana Li, ACGA

9 September 2021

China’s decision to take token stakes in key mainland entities of tech giants such as ByteDance and Weibo underscores a tactical shift toward more direct influence over private enterprises. We expect more to come—and it is unlikely to be limited to the tech sector.

As reported last month in tech website The Information, the state purchased 1% of Beijing ByteDance Technology, the TikTok owner’s key PRC subsidiary, back in April. In return, Beijing received one of three seats on the board.

A similar strategy played out at Weibo: in a recent filing, the US-listed firm disclosed that its main China entity received a 1% investment in April 2020. This likewise gave the purchaser the right to appoint a director to the board.

In the case of Weibo’s subsidiary, the buyer was WangTouTongDa (Beijing) Technology, an entity fully owned by the China Internet Investment Fund, which is controlled by the Cyberspace Administration of China (CAC). The CAC has taken a leading role in Beijing’s tech crackdown.

The 1% stake in Beijing ByteDance meanwhile was purchased by WangTouZhongWen (Beijing) Technology. It is ultimately owned by three entities: as to 40% by the China Internet Investment Fund has, 30% by the China Media Group, a national broadcaster for the Chinese Communist Party, while the remaining 30% is held by the Beijing Cultural Investment Development Group, an investment arm of the Beijing municipal government.

Dancing to Beijing’s tune

According to reports, the 1% Beijing ByteDance deal was a compromise. The political fallout from the TikTok national security issues flagged in the US derailed a listing last year. With a view to keep operating in China, it reportedly averted a sale in the holding company, instead convincing Beijing to take a small slice of the China entity. 

In Weibo’s case, WangTouTongDa paid just RMB 10.7m for a 1% stake in Beijing Weimeng Technology, a key China subsidiary, back in April 2020. The company holds core assets, including internet licenses, permits and domain names. The new shareholder is not only entitled to appoint a director to the three-member board—it also has veto rights in relation to content decisions and certain future financings.

A definite pivot

Beijing has up to now largely stuck to a regulatory playbook in attempting to curb the influence of tech giants in China’s economy and wrest control of sensitive data from them. By directly taking a stake in the key China entities of firms, the state is now guaranteed a say in their strategic decision-making. The goal is no doubt to ensure that Party leadership will be further strengthened in China beyond state enterprises.

The Beijing ByteDance appointment appears to confirm this: according to Tianyancha, a widely referenced database of corporate records in China, the new board member is Wu Shugang, a career government official with a strong background in propaganda. Wu joined the CAC as divisional chief for “local direction” in 2017, during which time he delivered speeches on the importance of the technology industry following the directions of the Communist Party Congress. We found no evidence of him having any business experience.

This does little to quell investor anxiety over Beijing’s plan for businesses, as the boundaries between state-owned and private firms become increasingly blurred.

As we noted in CG Watch 2020, China has been broadening the role of Party Committees beyond state enterprises. Under current rules, even companies only partially owned by the state are now expected to set up such committees.

More to come…

We believe Beijing is setting a precedent and expect similar moves at other key entities. It is doubtful the move will be contained to tech. Unfortunately, in Weibo’s case, we only found out about the purchase in its annual filing with the SEC. It did not disclose that the ultimate owner is the state.

This could change under a proposed rule by the SEC under the Holding Foreign Companies Accountable Act that certain companies listed in the US—predominantly those based in China—make specific disclosure over state control and influence. Under an interim final rule, certain issuers must declare whether it is owned or controlled by a government entity.

About the Author(s)

Nana Li
Research and Project Director, China, ACGA

Nana Li
 is Research and Project Director, China for ACGA, joining the Association in February 2014. Her primary responsibilities include researching corporate governance developments in Hong Kong and China. She was the primary author of the China and Hong Kong chapters of CG Watch 2018, and project manager and one of the main authors of ACGA’s China Corporate Governance Report 2018.

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