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Chinese government builds stake in unit of TikTok-owner ByteDance

State agencies now hold 1% share and board seat at domestic subsidiary

The ByteDance unit in which the government acquired shares holds the operating licenses of the group’s domestic apps.   © AP

HONG KONG -- A Chinese government fund has taken a small stake in a domestic operating unit of ByteDance, creator of the global hit short-video app TikTok, as Beijing tightens its grip over major internet platforms.

WangTouZhongWen (Beijing) Technology, owned by a Cyberspace Administration of China investment vehicle as well as two other state agencies, invested 2 million yuan ($308,770) in April for a 1% stake in Beijing ByteDance Technology, according to public records from the National Enterprise Credit Information Publicity System.

The investment was made when the ByteDance subsidiary raised its registered capital to 200 million yuan from 10 million yuan, according to data from Tianyancha, a corporate information platform. The state-owned fund also took a seat on the unit's board.

A ByteDance spokesperson confirmed the state investment with Nikkei Asia. The shareholding was first reported by The Information.

In addition to TikTok, which operates overseas, ByteDance runs domestic sister app Douyin, China's largest short-video platform with over 600 million users, and top news aggregation service Jinri Toutiao. Beijing ByteDance Technology holds the operating licenses of the group's domestic apps and manages publishing, news and video production.

"For the Chinese state, new-gen tech companies are a black box, in many aspects," said Ivan Platonov, a technology analyst at research company EqualOcean in Beijing. "It is apparent that Douyin and Toutiao, per the regulators' general logic, need some in-house supervision, given the volumes of data they manage and related issues."

Given concerns in Washington and other foreign capitals about Beijing's influence over TikTok, he speculated the new shareholding could affect ByteDance's plans for an initial public share offering.

"Fully spinning TikTok off seems to be one solution here," Planotov said.

ByteDance recently revived plans to IPO in Hong Kong as early as the fourth quarter, according to The Financial Times. The company spokesperson told Nikkei Asia that ByteDance has no such plan.

"A 1% ownership stake of ByteDance doesn't change much... And even if it was large, involvement and control does not require ownership in Chinese media," said Jeffrey Towson, an online lecturer on China's digital sector and former professor at Peking University.

Foreign investors, including SoftBank Vision Fund and U.S. private equity groups Sequoia Capital and KKR, holds stakes in an offshore ByteDance company that receives profits from the Chinese operating units.

Public records show that the China Internet Investment Fund, set up with an initial 30 billion yuan from the cybersecurity agency and the Ministry of Finance in 2017, took a 1% stake in the main domestic unit of New York-listed Weibo, China's equivalent of Twitter, last year.

The fund, according to its website, also holds small stakes in Kuaishou Technology, a key ByteDance rival that listed in Hong Kong in February, and podcast app Ximalaya, which recently abandoned plans for a U.S. initial public offering.

The fund could not be reached for comment on Tuesday.

News of the ByteDance and Weibo investments comes as the authorities widen a crackdown on Big Tech on fronts ranging from monopolistic behavior to data privacy.

Regulators have also grown warier of platforms such as Douyin and Weibo that allow users to publish their own content.

Earlier this year, China's internet watchdog issued regulations requiring bloggers, influencers and other independent content creators to obtain official credentials to publish certain contents on social media platforms.

The Cyberspace Administration has also launched a campaign to clean up "problematic" public accounts and politically sensitive content. Charts of trending contents on social media and mobile phone alerts have also been affected.

Additional reporting by Cora Zhu

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