In 2017, the Cyberspace Administration of China (CAC), China’s nominal internet regulator fully under the control of the Chinese Communist Party (CCP), ordered all internet news information service providers to implement the “special management” system. In the following years, the Chinese government utilized this system to exercise control and influence over Chinese technology companies involved in media and content.
The use of “special management shares,” or “golden shares” grants the state a degree of control over an entity while still encouraging private investment. A government fund may take a small minority stake in a large media company or its subsidiary, and over time, the company can grow through foreign and domestic investment, competing on the global stage without the government losing all control and influence. The governing party’s objective was likely not intended to limit the power of private companies, but to encourage a symbiotic relationship between the government and China’s burgeoning media and tech industries.
>> Investigating China’s economic coercion: The role of Chinese corporate entities <<
When examining private businesses in China, one might assume that control and influence are solely determined by majority ownership. However, for large Chinese tech companies, being owned via golden shares can translate to government control over content, major investment decisions, and even outright veto power.
Here’s one example of this mechanism at work:
Case Study: Alibaba
The Chinese government has utilized golden shares in its relationship with Alibaba. In January 2023, CAC’s fully-owned fund, Online Investment Suicheng (Beijing) Technology Co., Ltd, obtained a 1% stake in Alibaba’s subsidiary, Guangzhou Antler Information Technology Co., Ltd. The CAC used the purchase to tighten control over content at the video streaming unit Youku and web browser UCWeb. Chinese corporate records also indicate that the subsidiary added a new director, Zhou Mo (周沫), who shares the same name as a mid-level official at CAC.
Although there are typically no specific indicators in a Chinese corporate record that would explicitly identify a golden shares relationship, there are often clues. One is the commonly used 1% shareholding percentage. Additionally, the sudden appointment of new officers, such as Zhou Mo, with previously no known affiliation to a company like Alibaba, may also suggest government involvement. With the case of Alibaba, one clue is Sayari Graph’s “Owned by State-Owned Enterprise (SOE)” risk factor, which indicates that Online Investment Suicheng is ultimately owned by the state-owned CAC fund, China Internet Investment Fund Management Co., Ltd.
Fig. 1: Sayari Graph image depicting CAC’s use of golden shares to invest in Alibaba subsidiary
Chinese state control and influence
To date, the Chinese government has focused primarily on media and content entities, but the system could be extended to other industries. If so, this has major implications for foreign investors and others concerned about Chinese state influence, export controls, outbound investment regulations, or other issues.
When analyzing Chinese corporate relationships, it is important to obtain a nuanced understanding of Chinese corporate governance. This requires an awareness of non-traditional methods of ownership and control, which includes the Chinese government’s recent use of golden shares.
In our analysis, we identify entities tied to government holdings of large technology companies that have not been reported in the press, and highlight certain indicators to look for that might help identify a golden shares relationship.
To learn about different examples of the Chinese government’s use of golden shares, download our analysis.
