China's Government to Take Stake in Alibaba, Tencent

Chinese Government Entities Are Set to Take So-called "Golden Shares" in Units of Alibaba Group Holding Ltd. and Tencent Holdings Ltd., Suggesting Beijing Is Moving to Ensure Greater Control Over Key Players In the World's Largest Internet Arena.

This move would give the Chinese government more control over these companies, which are both major players in the global internet market.

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As Beijing prepares to loosen its grip on the internet sector, discussions are emerging about the implications of the move. The current share structure, which allows the government to nominate directors or sway important company decisions, could grant officials a tool to influence the industry over the longer term. If the government loosens its grip on the sector, it could have a significant impact on the way the internet is governed in China.

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According to corporate database Qichacha, an arm of the Cyberspace Administration of China took 1% of an Alibaba digital media subsidiary in Guangzhou on Jan. 4. The company’s media portfolio includes businesses such as streaming platform Youku and mobile browser UC Web. A new director who shares the name of a CAC official was appointed that same day, records showed, confirming a Financial Times report.

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The fund that invested in Alibaba is backed by the CAC, as well as well-known state-owned enterprises such as CITIC, China Post, and China Mobile Ltd. There are also discussions underway about a government entity taking a similar stake in a Tencent subsidiary in mainland China, according to a person familiar with the matter. The Financial Times was the first to report on this potential investment.

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There are increasing signs that the Xi Jinping administration is reversing course on its campaigns against gaming addiction and preparing to allow companies such as Alibaba to operate without government scrutiny. This change in policy is likely due to the desire to revive the Chinese economy.
The central bank of China is exploring ways to support the country's tech industry. Ma Jianyang, an official with the bank, told a news briefing in Beijing on Friday that the bank will study financial support measures for the healthy development of tech companies.

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According to Reuters, Didi Global Inc. may gain approval to relaunch its apps as soon as next week, completing a widely anticipated return to mobile stores.
The Chinese government's increased influence over Alibaba and Tencent, with the Financial Times reporting that authorities will take a 1% direct stake in each company, could raise scrutiny of the companies outside China and slow their expansion. Beijing has already taken a golden share in Tiktok-parent Bytedance and Kuaishou.
Catherine Lim and Trini Tan, analysts at Gartner, say that the current economic climate is ripe for digital transformation. "Organizations are under pressure to do more with less, and they are turning to digital technologies to help them drive efficiencies, optimize operations and improve customer experiences," they say.

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China has ended its two-year ban on Australian coal imports, easing up on tech giants and dialing back the stringent “three red lines” that exacerbated a property meltdown. These market-friendly changes come after an abrupt U-turn on strict Covid restrictions in early December.
Now the question is whether the policy overhaul is a move toward the flexibility that helped China's economy grow over the past four decades, or just a reaction to a weakening economy.

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Tencent and Alibaba were largely unchanged in Hong Kong, recouping earlier losses. A Tencent spokesperson declined to comment, while an Alibaba spokesperson was not available for comment.
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Banny Lam, head of research at Ceb International Inv Corp Ltd, said that while the news is slightly positive, both Alibaba and Tencent have been struggling with the issue of crackdowns in recent years. Having the government as a stakeholder could potentially help them to get greenlights to do business in new areas and lower the risks of further clampdown by the regulators.

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State organs in China have been investing billions of dollars in private firms and startups for many years, from Didi to Jack Ma's Ant Group Co. In recent years, as Beijing has tightened its control over the internet, official agencies have also taken nominal stakes of typically 1% - the so-called golden share.
It is unclear how Beijing will ever exercise its holding in TikTok, but analysts have speculated that it could help the government with access to important data. TikTok-owner ByteDance Ltd. and Weibo Corp. are among the major internet firms to have disclosed such an arrangement.