Chinese Gov’t Wants More Control Over China’s Tech Companies

China is looking to gain more control over its largest tech companies, including Tencent, Weibo and a unit of Alibaba.

According to a news report from The Wall Street Journal, the Chinese government not only wants a stake in the companies, but also wants to have a say in corporate decisions. As a result, regulators have discussed taking 1 percent stakes with Tencent and Weibo, as well as with Youku Tudou, which is owned by Alibaba, in what the government calls “special management shares.”

These special management shares first came to light in spring 2016, when Beijing released a draft proposal suggesting a 1 percent government stake in companies in exchange for board representation.

While many didn’t believe the proposal would go anywhere – especially due to the threat of lawsuits and the high price of shares – regulators and People.cn, the website of the Communist Party newspaper People’s Daily, have already taken stakes of less than 2 percent in mobile news platform Yidian Zixun and Beijing Tiexue Tech Co. In exchange, the investors get to appoint a government official to the companies’ boards and have a say over their operations.

In addition, People.cn is paying 7.2 million yuan for a 1.5 percent stake in Beijing Tiexue, operator of the nationalistic military portal and forum site Tiexue.net, according to regulatory filings. People.cn will appoint a board member to Tiexue.cn and will review all content on the site.

“Every company will have to do it eventually, so the earlier you get in, the more competitive advantage you’ll gain,” said a source familiar with the deal.

This news comes during an already difficult time for China’s tech companies. Last month, regulators fined social media platforms owned by Tencent, Weibo and search engine company Baidu Inc. for hosting pornography, fake news and other banned content. And after People’s Daily attacked Tencent’s top game, “Honor of Kings,” for being too addictive for the country’s youth, the company’s share price fell 4 percent in one day, taking $14 billion off its market value.

While companies have privately expressed concern over the move, tech giants like Alibaba and Tencent are also trying to stay in Beijing’s favor. Alibaba founder Jack Ma is setting up a foundation with a goal of raising 100 billion yuan ($15.2 billion) from fellow entrepreneurs to create opportunities for the poor, a priority for Chinese President Xi Jinping. And the co-founder of Tencent, Pony Ma, took up another government cause this year, advocating for southern China’s greater economic integration with Hong Kong.

Alibaba, Tencent and Baidu, along with others, agreed this summer to invest $11.7 billion in wireless carrier China Unicom, furthering a government goal of bringing private-sector money into state companies.