Beijing tightens grip on ByteDance with rare China board seat

[BEIJING]

CHINA'S government quietly appointed a director to the board of ByteDance Ltd's key domestic subsidiary several months ago, an unusual arrangement that offers the Chinese government even more sway and insight into the world's largest private technology company.

The video and news giant had in April sold a 1 per cent stake in Beijing ByteDance to three entities, including one controlled by the country's Internet overseer, and gave the government a board seat, said a source.

The entity, which owns licences to operate the company's TikTok-like Douyin and news service Toutiao within the world's No 2 economy, remains separate from ByteDance Ltd, the company's main fundraising vehicle through which it operates TikTok globally.

Chinese state organs have for years invested billions of dollars into high-profile startups from Didi Global Inc to Jack Ma's Ant Group Co, but few - if any - have managed to secure a seat at the highest decision-making table.

The revelation about ByteDance, first reported by The Information, is likely to deepen investors' concerns about Beijing's attempts to wrest control of data from its giant technology industry, to both curb its influence and secure a valuable resource to power the economy and drive Xi Jinping's vision of common prosperity.

It is not clear what motivated the government's involvement at ByteDance earlier this year, but it coincides with Beijing's sweeping crackdown on private enterprises, particularly in the tech sector. Regulators have expressed concerns about data security and the tools that companies like ByteDance use to present content to users.

But the fact that the industry regulator can designate someone to the board of a prominent sector player may unsettle investors worried about the broader ramifications of Beijing's clampdown. Even before Mr Xi's administration tightened its grip on the tech sector, ByteDance had grappled with American lawmakers' accusations that TikTok, in particular, threatens national security and could aid Beijing in espionage efforts.

In May, the month after the Chinese regulator took its stake, founder Zhang Yiming relinquished day-to-day control of his company to its closest lieutenant, a decision regarded as an attempt to distance himself from the growing turbulence at home and abroad.

Michael Norris at consultancy AgencyChina said: "It intensifies worries about the government's intentions for China's Internet sector and the concessions private firms may have to make. It gives new context to Zhang Yiming's decision to step down from his position as ByteDance's CEO."

Mr Xi's crackdown on businesses from ride-hailing firms to fintech and edtech upstarts to the largest players in commerce has traumatised markets throughout much of 2021, wiping more than US$1 trillion off Chinese stocks and igniting intense debate about the Communist Party's longer-term objectives for private enterprise.

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