China tries to take control of private tech companies with ‘joint venture’ deals – H Talk Asia

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

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

The joint venture is based “on the strategic imperatives of the company’s extensive penetration into the digital economy,” according to statements by China Unicom on the Shanghai and Hong Kong stock exchanges.

Tencent is bringing a massive amount of data from its super app WeChat, which provides social media, payment and messaging services to 1.4 billion people in China and beyond.

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

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

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

Sources familiar with the private sector in China said more similar deals are expected by the end of the year, with large private tech companies being assigned a state-owned “partner,” meaning the state effectively takes control of at least some of their assets will take over.

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

In July 2021, State Treasury spokesman Peng Huagang said his agency will push “mergers” between the private sector and state-owned enterprises, with acquisitions implemented through both paid buyouts and gratuitous nationalization, as well as share transfers.

Huang Guangyu, CEO of GOME Electrical Appliances Holding Ltd., seen in this 2006 photo, and his wife sell their stake in their private retail empire, GOME. Photo credit: Reuters

Accelerate nationalization

Hangzhou-based scholar Chang Yu said the nationalization process now seems to be accelerating following the Chinese Communist Party’s 20th National Congress last month.

“Everyone knows that this public-private ‘partnership’ is one-way,” Chang told RFA. “Even before the party congress, the government took action against it [what they termed] the disorderly expansion of capital and halted the expansion of private enterprise.”

“Now that the congress is over, they can speed up this process and take more drastic steps.”

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

“This heralds an era of planned economy, as mentioned in [Xi Jinping’s] Report to the 20th Party Congress,” Wu told RFA. “This will put private capital, particularly Tencent and JD.com, under the control of the Beijing government.”

“If you look at the shareholder structure, it appears to be a hybrid type of joint venture driven by ideology,” he said.

Wu said it was made clear during the convention that no one should lobby to protect or support large private companies.

“The last protective measures and lobbying [attempts] because these huge online platforms have been removed,” he said.

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

“The goal 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]everything to do with the Internet is a matter of national security.”

“They control these companies just like they did in 1953, through public-private ‘partnerships,'” he said.

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

“Private companies promote a market economy that goes against totalitarian rule, so they need to be curtailed or even eliminated,” he told RFA’s Asia Wants to Talk talk show.

“They are laying the foundation for a command economy.”

China’s rich are looking for a way out

Reports are emerging that China’s richest people get the message: Home electronics magnate Huang Guangyu and his wife are selling their stakes in their private retail empire GOME, raking in HK$960 million (US$122.3 million) and downsizing their stake from 51.5% to 42.8% later this year.

Nanjing-based retailer Xu Jing said many wealthy business owners are very pessimistic about their future in China and would leave if they could.

“Wanting to leave the country and being allowed to leave the country are not necessarily the same … because [entrepreneurs may now be] on a government [border] checklist because they have a lot of debt,” Xu said. “Especially real estate bosses.”

Changsha-based real estate insider Tian Hui made a similar statement. “Business is not good at the moment; revenues are low, but expenses continue,” he said. “Yields are too slow and there are bank loans [to pay back].”

“[The wealthy] have been selling famous works of art and real estate since 2019 and taking the money to the United States to buy land and build real estate 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 to the new Long March because the government is now promoting socialism in the new era,” Ma said.

Translated and edited by Luisetta Mudie.