China could finally be relaxing his technical crackdown (opens in new tab), but the government is not completely exiting the sector. Instead of the strict approach where Alibaba imposed billions in fines, tech CEO Jack Ma temporarily disappeared from the public eye and game approvals slowly trickled, reports the Financial Times (opens in new tab) that the government is changing course and proceeding to take “special management shares” – or “gold shares” – in many of China’s leading technology companies, including Tencent.
These gold shares are relatively small – normally about 1% – but grant rights to certain business decisions and agreements made at the companies in which they are made. The gold share the government hopes to acquire in Tencent is still being discussed, but sources the FT has spoken to understand it will involve a stake in one of the company’s main Chinese subsidiaries and that Tencent has been pushing for a one-to-one state entity based in Shenzhen – his home – to take the share rather than in Beijing.
We don’t know what powers this share deal would ultimately grant, but we can look at other similar deals to get an idea. For example, when a state entity took a gold stake in TikTok owner ByteDance, it gained the power to nominate one of the company’s three directors. The government chose it nominate an official named Wu Shugang (opens in new tab)who was then able to exert some influence over the company’s business strategy and, crucially, was given the ability to appoint the editor-in-chief of ByteDance’s media platforms: a significant degree of power over the content that would be shown on those platforms.
So it seems that the Chinese government is loosening its grip, but keeping its hand firmly on the helm when it comes to the country’s technology and games sector. Oddly enough, it’s probably also great news for the country’s embattled investors and CEOs, who have watched in horror as their share prices were ravaged (opens in new tab) due to the intensive surveillance of the Chinese state over the past three years. It seems unlikely that the state will do something as drastic and public as its own Didi ban (opens in new tab) in the near future when it has its own people in corporate boardrooms: it could cause a PR backlash for both the government and the targeted company.
Plus, Tencent kicked out more than a hundred corrupt employees (opens in new tab) in the past year alone, and some of them have even reported it to the local police. You have to imagine that the company earned some breathing space from the government.
The gold stock arrangement feels poised to influence content in China more than the things it exports abroad, but it could ultimately dampen the rapid expansion of Chinese companies into non-Chinese markets in the near term. A Barron’s report last year (opens in new tab) highlighted the extent to which much overseas expansion by companies like Tencent had been driven by the fact that the government had effectively cut them off from the domestic Chinese market. If the state really relaxes its grip, those businesses could choose to eat at home instead of going out.