EXCLUSIVE Concerned about data security, Chinese government expands use of “preferred shares”

  • A share of gold was taken from Full Truck Alliance -source
  • Didi in talks on preferred shares deal -source
  • More golden stocks likely to come to light – source
  • Spotify-like Ximalaya Talks Gold Action -sources
  • The preferred action of the ByteDance unit predates disclosure – source

BEIJING, Dec.16 (Reuters) – The Chinese government has extended its practice of taking minority stakes in private companies beyond those specializing in online information and content to companies with large amounts of key data, said two people familiar with the matter.

It has de facto entered into a special management stake or “golden share” agreement with Full Truck Alliance Co Ltd (YMM.N), a Chinese platform organizing trucking services, according to one of the people.

Troubled Didi Global Inc (DIDI.N) has also been in talks about gold action for its core ridesharing business, a third source with direct knowledge of the matter said.

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Seeking influence, Beijing began taking preferred stock in private online media companies – typically around 1% of a company – around five years ago. Stakes are purchased by government-backed funds or companies that gain a seat on the board of directors and / or veto rights over key business decisions.

Authorities are now also keen to have some control over vast treasures of data owned by certain companies, the sources said, adding that the data is seen as a national asset under threat of attack and misuse, including by states. foreigners.

“They have broadened their focus to other companies that have strategically important data and are seen as operators of critical information infrastructures,” said a person with direct knowledge of how some public investors are handling these issues.

Often times, there is no evidence of a preferred stock until ownership of the stock is publicly registered, but it can take a year or more. Other preferred stocks in data-rich companies will be revealed in due course, the person said, adding that authorities were now more willing to expose their ownership.

A separate source said preferred stock was taken very recently at a data-rich company, but declined to disclose which one.

Reuters was unable to determine how many other authorities at data-rich companies were seeking a privileged stake.

The sources declined to be identified due to the sensitivity of the issue. Internet regulator, the Cyberspace Administration of China (CAC), did not respond to a request for comment.

The golden stocks are a “sword of Damocles hanging over the heads of companies that own them, a reminder that data security is now closely watched by the authorities,” said Feng Chucheng, partner of consulting firm Plenum in Beijing.

Their expanded use is in line with China’s stricter stance on data protection. A new data security law came into effect in September, along with other rules that require operators of critical information infrastructure to perform security inspections and risk assessments.


Full Truck Alliance revealed in May that the China Internet Investment Fund (CIIF) had become a shareholder. The fund is backed by the ACC and its stake – taken around 2019 or 2020 – is essentially a special equity management agreement, according to a source.

Full Truck Alliance and the ICFR did not respond to requests for comment.

Didi’s talks over a preferred share are part of a planned corporate restructuring, according to a separate source. The restructuring came after Didi angered Chinese regulators by pursuing an IPO in the United States despite being asked to suspend it for a cybersecurity review, prompting authorities to July to order the removal of its applications from the application stores.

Didi also did not respond to a request for comment.

Full Truck Alliance and Didi are both listed in the United States and the CAC opened investigations into both in July.

A source said that companies listed in the United States or those seeking to be listed in the United States are more likely to attract attention when authorities think of companies in which they wish to have a special management stake.


The Chinese government also remains focused on controlling online content. Ximalaya, similar to Spotify, is in talks with a Shanghai government agency for a special management stake, two sources said.

Ximalaya declined to comment. Representatives of the government body, Shanghai Municipal Radio and Television Administration, could not be reached for comment.

The internet content industry has faced stricter scrutiny since 2017, when rules were changed to mandate government-affiliated investments in “qualified online news and information providers.” In the same year, online media platforms were also required to obtain licenses to broadcast news and other content.

ByteDance, owner of TikTok and its Chinese sister app Douyin, accepted a gold share for one of its Chinese subsidiaries in late 2019, a year and a half before the unit’s stake was registered, according to a source.

ByteDance did not respond to a request for comment.

It was implied that the acceptance of a special management participation would be useful for companies to obtain these licenses, added the same source.

Operators of news aggregators Yidian Zixun and Qutoutiao also sold stakes to government-related entities while Sina News sold one in an affiliate, according to public documents.

ByteDance news aggregator Jinri Toutiao and the other three news apps were all licensed to operate within two years of the golden share deal.

Board seats held by government-linked officials need not have a direct impact on day-to-day operations, a separate source said.

The CAC sent an official, Wu Shugang, to sit on the board of directors of the ByteDance unit in which a subsidiary of CIIF holds its golden share. While Wu has an office at one of ByteDance’s premises in Beijing, he rarely attends meetings and ByteDance usually deals directly with the ACC, the source said.

Reuters was unable to reach Wu for comment.

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Reporting by Yingzhi Yang and Cheng Leng in Beijing and Julie Zhu in Hong Kong; Editing by Brenda Goh and Edwina Gibbs

Our Standards: Thomson Reuters Trust Principles.

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