Chinese government takes minority stake, board seat in TikTok owner ByteDance’s main domestic subsidiary

Beijing ByteDance Technology sold a 1 per cent stake to Internet Investment Chinese (Beijing) Technology in a transaction in late April
The government investor is a unit under the state-backed China Internet Investment Fund

China technology

Coco Fengin Beijing

Published: 7:30pm, 17 Aug, 2021

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The Chinese government has taken a minority stake and a board seat in TikTok owner ByteDance’s main domestic subsidiary, which could signal closer oversight by Beijing over the country’s most valuable technology unicorn.

Beijing ByteDance Technology Co sold a 1 per cent stake to state-owned firm Internet Investment Chinese (Beijing) Technology in a transaction in late April, according to Tianyancha, a Chinese corporate registry data service. As part of the deal, a government official named Wu Shugang became a board member of the ByteDance subsidiary.

This business unit “relates to some of ByteDance’s China-market video and information platforms, and holds some of the licences they require to operate under local law”, according to a statement by parent firm ByteDance on Tuesday. The domestic operations of the Cayman Islands-domiciled tech unicorn include hit Chinese short video-sharing app Douyin and news aggregator Jinri Toutiao.

While the amount involved in the government’s investment was not revealed, data from Tianyancha showed that Beijing ByteDance Technology significantly increased its registered capital to 200 million yuan (US$30.9 million) in late April from 10 million yuan previously. Parent firm ByteDance, which did not announce the deal in April, continues to hold a 99 per cent equity stake.

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The transaction was initially flagged by local Chinese media and reported by online technology news site The Information on Tuesday.

Internet Investment Chinese, which was incorporated in July 2019 with 10 million yuan in registered capital, is known as a “grandson” company of the state-backed China Internet Investment Fund (CIIF). The firm is owned 40 per cent by a CIIF subsidiary, with the rest of the shareholding equally owned by an asset management fund under the Beijing municipal government and a company under state broadcaster China Central Television, according to corporate registry data.

Wu, the government official with a seat on Beijing ByteDance Technology’s board, has spent most of his public sector career in propaganda since he joined China’s Ministry of Education in 2007, according to Chinese government websites and official media reports.

Most recently, Wu served as division chief for “local direction” at the online opinion bureau under the Cyberspace Administration of China (CAC), the country’s internet regulator, according to an official report in November 2017. He delivered reports to government officials and internet firms in Northeast China’s Jilin province on how the country’s cyberspace industry must implement directives from the 19th Communist Party Congress in 2017, according to an article published on the CAC website.

At Beijing ByteDance Technology, Wu will join other company directors like Zhang Lidong, the firm’s chairman and legal representative; editor-in-chief Zhang Fuping; and Xiao Jinmei, a senior executive in charge of human resources. Information about parent firm ByteDance’s board of directors and corporate organisational chart was taken down from its website as of Tuesday.

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The Chinese government’s investment in Beijing ByteDance Technology came amid rampant speculation at the time about an initial public offering (IPO) by ByteDance, whose overall revenue more than doubled to US$34.3 billion last year. The company said in late April that it had no immediate plans to go public.

News about that deal, meanwhile, came just months after ByteDance founder Zhang Yiming announced that he would relinquish his role as chief executive at the tech unicorn, which followed a growing trend for China’s Big Tech company leaders to step back at the peak of their careers.

Further investment in the country’s major internet companies is likely to continue with the backing of the CIIF, which was cobbled together with funding from state-owned banks and companies, with oversight by the CAC and the Ministry of Finance.

The CIIF is focused particularly on basic internet infrastructure, cybersecurity, artificial intelligence, big data and various internet services, according to the fund’s website. It listed 40 projects in its current investment portfolio.

These include investments in microblogging platform Weibo, short video-sharing app operator Kuaishou Technology, audio platform Ximalaya and Chinese truck-hailing apps operator Full Truck Alliance. Ximalaya recently shelved its IPO plan, following the government’s cybersecurity reviews of Didi Chuxing and Full Truck Alliance, which runs apps Yunmanman and Huochebang.

This article appeared in the South China Morning Post print edition as: State firm takes stake, board seat in ByteDance unit