State Oversight of Alibaba Unit Increases with China's Purchase of Stake

The Chinese government has recently taken a stake in a subsidiary of Alibaba Group Holding Ltd. This move gives the Chinese authorities a greater role in the company's operations.

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Indicating regulators' intention to keep the sector on a tight leash, even as they move past an extended crackdown on the country's internet-technology giants.
An entity controlled by the Cyberspace Administration of China (CAC), the country's internet watchdog, took a 1% stake in an Alibaba business based in Guangzhou, south China, on Jan. 4, according to China's corporate registry. The CAC also appointed an official to the board of the Alibaba entity, whose media portfolio includes mobile browser UC Web, people familiar with the matter say.

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China's central bank said on Friday that the business rectification process for Alibaba's financial-technology affiliate Ant Group Co. has been completed. Ant, along with 13 other internet companies, have corrected the issues raised by authorities, which include unlicensed operations, the disorderly expansion of business, and infringement of consumer rights.

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This announcement means that Ant can now apply to become a fully regulated financial holding company under the central bank’s supervision. This is the final step in Ant’s business transformation, which started more than two years ago when the company had to cancel its initial public offering.
Alibaba, Ant and the CAC did not respond to requests for comment.

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Friday's central bank disclosure adds to the growing body of evidence that China's two-year crackdown on its biggest technology companies is coming to an end. However, state oversight is likely to become the new norm for technology regulation, particularly in the content sector, as China takes a more direct hand in managing its biggest news and internet-content companies.

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In addition to Alibaba, authorities have also acquired small but symbolic stakes in other content operators such as Beijing Douyin Information Service Co. (the owner of the popular short video app Douyin) and Twitter-like Weibo Corp. In 2021, Beijing sought board seats at the two companies and sent dedicated regulators to police content at the firms more frequently.

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Chinese officials are concerned about the influence that platforms like Facebook and Twitter have on public opinion. In response, they have explored the use of nominal stake sales and board seats to give them a more direct say in businesses' content decisions. In return, companies are able to secure licenses to expand within the sector more easily.

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The Cyberspace Administration of China is in talks with Tencent Holdings Ltd. to use government money to acquire a 1% stake in one of its domestic subsidiaries related to media and entertainment, people familiar with the matter said. Tencent declined to comment.
According to the Financial Times, someone has been buying up shares in the company.

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In July 2022, Chinese authorities moved to tighten control over Alibaba's content production arms. A subsidiary of government-owned Zhejiang Media Group then acquired a 1% stake in Youku Film and Television Co., a Shanghai-based Alibaba subsidiary, according to China's business registry. Records show that the Zhejiang Media Group also named a senior executive to the board of the Shanghai company.
Both Alibaba firms are owned by its media and entertainment unit.

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Alibaba, a technology company whose businesses include entertainment content and cloud services, is also China’s biggest e-commerce company. It runs Youku, a popular video-streaming platform in China, produces and finances movies through its film business Alibaba Pictures Group.
In recent weeks, Chinese technology shares have risen amid signs that the country is wrapping up its regulatory crackdown on the internet sector and pivoting to economic development. This has been welcomed by investors who see potential in the Chinese market.

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On Friday, shares of Tencent and Alibaba, both traded in Hong Kong, gained around 2%. This marks a sharp rise from the multiyear lows they hit in October of last year.
Alibaba and its financial affiliate Ant have been facing increased scrutiny from Chinese regulators over the past two years. This week, however, top officials in Hangzhou, where Alibaba is based, hinted that the regulatory environment around the company may be easing up.

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Hangzhou authorities praised Alibaba for its contributions to the city in a social media post on Tuesday, and signed a strategic cooperation agreement with the company.
On Friday, Ma Jianyang announced that the central bank and other government agencies had completed a two-year long investigation into Ant and 13 other companies. He said that the bank and the agencies had looked into the financial practices of the companies and had wrapped up the investigation.
Mr. Ma's comments come just days after the chairman of the China Banking and Insurance Regulatory Commission told state media that the government is wrapping up a campaign to "rectify the businesses of 14 platform companies."

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Since its blockbuster initial public offering was called off by Chinese regulators in late 2020, Ant has been restructuring its businesses. Last Saturday, the fintech giant announced that Alibaba founder Jack Ma would cede control of the company.