China tightens media control with tiny stakes in two Alibaba units

China tightens media control with tiny stakes in two Alibaba units

Alibaba completed its acquisition of video platform operator Youku Tudou in 2016. Pictured here is an old version of the Youku logo.

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BEIJING — State-backed entities have taken tiny stakes in parts of two Ali Baba subsidiaries that oversee a video platform and web browser.

News of the holdings in the last week raised concerns about Beijing’s influence over the U.S.-listed e-commerce giant. However, the affected subsidiaries are just two of several units under the company’s digital media and entertainment arm — an arm that accounts for 4% of Alibaba’s revenue.

Alibaba shares have gained slightly over the last five trading days.

The state-backed stakes reflect a progression of government directives over the last decade to increase control of media in China. The so-called golden sharesor special management shares, generally allow the state-backed entity to install a board member with the power to veto decisions — for the company the entity has taken a 1% stake in.

It will likely take a couple months to see what level of influence the state has gained, said Liqian Ren, leader of quantitative investment at WisdomTree. “So far most of the stakes announced (including in other Chinese companies) seem to be highly concentrated on media companies and media subsidiaries.”

“It’s very natural for the Chinese government to want to control how information is disseminated,” she said, “particularly if you believe China has entered a period where there will be much more frequent protests.”

Groups of Chinese held public demonstrations in late November to protest stringent Covid controls. Reports of other protests in the last several months include some Tesla owners upset with price cuts, people at a provincial capital protesting frozen bank deposits and disgruntled workers at certain factories.

Since 2020, business records show state-backed entities have taken 1% stakes in popular social media or short-video apps WeiboByteDance’s Douyin and Kuaishou. That’s on top of censorship that often deletes articles or freezes accounts over words deemed sensitive.

Along with media, finance and energy are the two other industries that Beijing is inclined to control, said WisdomTree’s Ren. Her firm has a fund for investing in Chinese companies that aren’t state-owned.

Alibaba is the largest holding in that fund. Ren said WisdomTree isn’t making changes to that holding at this time, because it recently completed its annual review and because it only considers state-owned enterprises as those with government ownership of more than 20%.

SoftBank is by far the largest holder of Alibaba’s U.S.-listed shares, at nearly 24%, according to S&P Capital IQ. Vanguard and BlackRock are next, each with holdings of less than 3%, the database showed.

About two-thirds of Alibaba’s annual revenue of about $125 billion comes from China commerce.

How small are the stakes?

Signs of a regulatory shift

Chinese bank and insurance regulator head Guo Shuqing told state media this month that the “rectification” of the financial businesses of 14 platform companies has been basically completed.

“Minimal, non-controlling government ownership in Chinese tech firms may be an indication that Beijing is done with tightening regulation is shifting to oversight and enforcement,” said Brian Tycangco, analyst at Stansberry Research. “It also means the government now shares, albeit minimally, in the future success of the business.”

Ant in the last few weeks also got approval to expand its consumer finance business — along with investment from a Hangzhou city-backed entity.

Didi said this week it had resolved regulatory concerns and could start to accept new user registrations.

One of the primary regulators is the Cyberspace Administration of China, which ordered a cybersecurity review of Didi shortly after its U.S. IPO. The administration has its roots in propaganda and censorship work, according to Stanford’s DigiChina Project.

State ownership of local media

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