Hello and welcome back to TechCrunch’s China Roundup, a round-up of the recent events that have shaped the Chinese technology landscape and what it means for people in the rest of the world.
Investor concerns heightened this week when it became known that the Chinese government had acquired a stake in ByteDance, the parent company of TikTok and one of the world’s largest private internet companies. Meanwhile, Amazon’s crackdown on Chinese sellers continues, forcing many traders in southern China to go out of business, and the government has passed a comprehensive data protection law that will come into effect in November.
A state share
The Chinese government’s grand plan to gain more control over the country’s internet giants continues. This week, the information reported that a domestic ByteDance company sold a 1% stake to a state owned subsidiary in April. The deal was also recorded on Tianyancha, a database of publicly available company information and the official company registration index.
The move didn’t come abruptly. Beijing was considering small stakes in private technology companies as early as 2017. The Wall Street Journal reported at the time that internet regulators were discussing acquiring a 1% stake in companies like WeChat operator Tencent, Twitter-like Weibo, and YouTube-like Youku.
In April 2020, WangTouTongDa, a subsidiary of The China Internet Investment Fund, which is in turn controlled by China’s leading Internet watchdog, acquired a 1% stake in Weibo for 10 million yuan, as Weibo has filed with the US Securities and Exchange Commission. Weibo did not mention WangTouTongDa’s relationship with the state in its motion.
Similarly, ByteDance sold a 1% stake in three companies formed by leading regulators: China Internet Investment Fund; China Media Group, controlled by the Communist Party’s Propaganda Department; and the investment arm of the Beijing City Government.
In response to Beijing’s move to ByteDance, Republican Senator Marco Rubio this week called on President Joe Biden to block TikTok in the United States
Exactly how much power Beijing will gain from taking over the small stake in ByteDance remains unclear, but Weibo’s disclosure to investors offers some clues.
It is important to note that the government owns shares in the domestic operating unit of Weibo and ByteDance. Internet companies in China often set up offshore companies that are contractually entitled to the financial benefits of their activities in mainland China. The frame is called a Variable Interest Entity or VIE. While the structure allows Chinese firms to seek funding overseas due to China’s restrictions on foreign investment, Beijing has been increasingly scrutinizing it.
Weibo said in the filing that WangTouTongda, its state-owned investor, will be able to appoint a director to its Chinese company’s three-person board and veto certain matters related to content and future funding.
ByteDance likely has a similar arrangement with its state investor. The government has not received a stake in TikTok, which is a subsidiary of a separate offshore company based in the Cayman Islands, The Information stressed. This should provide some reassurance for US regulators, though concerns about Beijing’s influence on Chinese companies overseas are unlikely to go away.
Indeed, in June, the Biden administration replaced Trump-era orders banning ByteDance and WeChat with more moderate policies that required the Department of Commerce to screen apps linked to “foreign adversary jurisdiction” that could pose national security risks.
TikTok fights against allegations of disclosing user data to Beijing. ByteDance is the fourth largest lobbying funder in the US this year, behind Amazon, Facebook, and Alphabet. Beijing’s investments will cost further campaigning efforts.
Pressed Amazon Sellers
In May, I reported that Amazon had shut down some of its biggest sellers from China for violating platform rules, including using fake reviews and incentives to solicit positive reviews from customers. The move panicked China’s online exporters, and it turned out not to be a one-time Amazon ambush, but a prolonged war. While the exact number of Chinese stores affected is not disclosed, industry watchers like Marketplace Pulse said “hundreds” of top Chinese sellers were banned in early July.
Punished accounts are blocked, their goods withheld and deposits from Amazon frozen. Companies in Shenzhen, home to most of the world’s Amazon sellers, have laid off thousands of employees in the past few months. The owner of a large seller in Shenzhen recently died of suicide as a result of the debacle, according to an acquaintance of the owner.
For sellers who survived the crackdown, the Amazon attack would have âhappened sooner or laterâ. Most of the exporters I’ve spoken to came to the same conclusion: Seattle-based Titan now wants quality and design over generic ones that only compete on price and manipulating the ranking.
The Chinese government has taken note of the incidents. A Commerce Department official at a press conference in July likened the wave of shop closings to “fish out of the water” by Chinese exporters.
“Due to differences in laws, culture and business practices around the world, [Chinese] Companies face risks and challenges on their way abroad, âsaid Li Xingqian, director of foreign trade at the Ministry of Commerce.
“We will support companies to improve their risk control and to comply with international trading standards.”
Finally, China passed a comprehensive data protection law this week that severely restricts the collection of user information by tech companies, but the rules are unlikely to affect government oversight. The regulation proposed last year will come into force on November 1st. Read more about the rules here: