China moves to take control of private tech firms with 'joint venture' deals

The move is a significant departure from market-oriented economic policies of the last four decades, analysts say.
By Gu Ting and Hwang Chun-mei for RFA Mandarin, Cheryl Tung for RFA Cantonese
2022.11.04
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China moves to take control of private tech firms with 'joint venture' deals A man walks past the Tencent headquarters in Shenzhen, in China's southern Guangdong province, July 10, 2022.
AFP

In a major departure from the market-oriented economic policy of the past 40 years, the Chinese Communist Party is moving to take greater control of technology and telecoms companies, with a return to the era of "joint ventures" between the state and private sector.

China's market regulatory body approved a new joint venture between the investment arm of state-owned telecoms giant China Unicom and tech giant Tencent, the agency said in an announcement on its official website last week.

The joint venture was "based on the strategic needs of the company’s comprehensive advancement into the digital economy," according to statements filed by China Unicom to the Shanghai and Hong Kong stock exchanges.

Tencent brings to the deal a massive amount of data gleaned from its WeChat super app that provides social media, payments and messaging services to 1.4 billion people in China and beyond.

However, Unicom Innovation Venture Capital will hold a 48% stake compared with Tencent subsidiary Shenzhen Tencent Industry Venture Capital's 42% stake, the state-run Global Times newspaper reported.

Meanwhile, the Shanghai subsidiary of China Mobile signed a strategic cooperation agreement on Nov. 1 with e-commerce giant JD.com's subsidiary JD Technology.

The goal of that joint venture is smart city technology, digital governance, big data and communications, Shanghai Securities News reported.

Sources familiar with the private sector in China said further similar deals are expected by year's end, with major private tech firms assigned a state-owned "partner," meaning the state will effectively take control of at least some of their assets.

The move follows a regulatory crackdown on privately owned tech giants in recent years. 

In July 2021, state-owned assets spokesman Peng Huagang said his agency would press ahead with "mergers" between private sector and state-owned companies, with takeovers implemented both by paid acquisitions and uncompensated nationalization, as well as share transfers. 

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Huang Guangyu, chairman of GOME Electrical Appliances Holding Ltd., shown in this 2006 file photo, and his wife are selling off their shares in their private retail empire GOME. Credit: Reuters

Accelerating nationalization

Hangzhou-based scholar Chang Yu said the nationalization process now appears to be accelerating in the wake of the Chinese Communist Party's 20th National Congress last month. 

"Everyone knows that this public-private 'partnership' only works in one direction," Chang told RFA. "Even before the party congress, the government was moving against [what they termed] the disorderly expansion of capital, and stopped allowing private companies to expand."

"Now the party congress is over, they can speed up that process and take more drastic steps."

Beijing-based commentator Wu Qiang said the moves are another indicator that Chinese leader Xi Jinping is taking China away from the market reforms introduced by late supreme leader Deng Xiaoping in 1979, and in the direction of a state-controlled economy similar to that of the Mao era.

"This heralds an era of a planned economy as mentioned in [Xi Jinping's] report to the 20th party congress," Wu told RFA. "This will place private capital, particularly Tencent and JD.com, under the control of the government in Beijing."

"Looking at the shareholding structure, it seems to be a hybrid kind of joint venture driven by ideology," he said.

Wu said it was made clear during the party congress that nobody should be lobbying to protect or endorse major private companies.

"The last protections and lobbying [attempts] for these huge online platforms have been removed," he said.

Current affairs commentator Ma Ju said the purpose of the joint ventures was to ensure state control of resources and technology.

"The aim of the cooperation agreements between China Unicom and Tencent and China Mobile and JD.com is [state] control over the flow of information and materials," Ma told RFA. "For [the Chinese Communist Party], anything relating to the internet is a matter of national security."

"They are controlling these companies in exactly the way they did back in 1953, through public-private 'partnerships,’" he said.

Political commentator Jiang Feng said some private companies could eventually be eliminated.

"Private enterprises encourage a market economy, which goes against totalitarian rule, so they must be restricted or even eliminated," he told RFA's Asia Wants to Talk chat show.

"They are laying the groundwork for a command economy."

China’s wealthy looking for an out

Reports are emerging that China's wealthiest people are getting the message, with home electronics magnate Huang Guangyu and his wife selling off their shares in their private retail empire GOME, cashing out to the tune of H.K. $960 million (U.S. $122.3 million) and reducing the size of their stake from 51.5% to 42.8% across the course of this year.

Nanjing-based retailer Xu Jing said many wealthy business owners are highly pessimistic about their future in China, and will leave if they can.

"Wanting to leave and being allowed to leave aren't necessarily the same thing ... because [entrepreneurs may now be] on a government [border] control list because they have a lot of debt," Xu said. "Particularly real estate bosses."

Changsha-based real estate insider Tian Hui gave a similar account. "Business is not good now; earnings are low, yet expenditures are ongoing," he said. "Returns are too slow, and there are bank loans [to pay back]."

"[The wealthy] have been selling off famous artworks and properties ever since 2019, and they are taking the money to the United States to buy land and build properties there," he said.

Scholar Ma Hong said in a joking reference to a 1980s Chinese rock anthem by Cui Jian, "Rock and Roll on the New Long March." 

"These rich people and bigwigs are all heading out on the new Long March, because now the government is promoting socialism in the new era," Ma said.

Translated and edited by Luisetta Mudie.

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