China Steps Up Direct Involvement in Internet Content Firms

China Steps Up Direct Involvement in Internet Content Firms

SINGAPORE—China is taking a more direct hand in managing its internet content companies by acquiring stakes, filling board seats and sending dedicated regulators to police content at firms more frequently, according to corporate filings and people familiar with the matter.

The moves, which aim to strengthen the government’s control over online content, build on guidelines first mooted in 2016 but enacted with rigor over the last year as Beijing has been increasing regulatory scrutiny into its technology sector. Authorities most recently targeted ByteDance Ltd., the owner of buzzy short-video platform TikTok as well as a popular suite of other news and content apps in China.

Beijing ByteDance Technology Co., the China-registered entity, in April sold 1% of its shares to a state-backed firm, according to publicly available government records. It also granted to the state-backed firm the right to appoint a director to its board, people familiar with the issue said.

The state-backed firm doesn’t have a board seat at TikTok, which is owned by ByteDance Ltd. and is registered outside of China, a person familiar with the matter said.

Weibo Corp.

WB -8.42%

, operator of a

Twitter

-like microblogging platform, also sold a 1% stake in its Chinese entity to a state investor and granted it a seat on its board of directors, corporate filings and people familiar with the matter said. The ByteDance and Weibo deals were first reported by technology news outlet The Information.

Weibo had 530 million monthly active users in China as of March.



Photo:

wu hong/EPA/Shutterstock

The Cyberspace Administration and Ministry of Finance, as well as Weibo, didn’t respond to requests for comment. A ByteDance spokesperson said the China-registered entity only relates to some of ByteDance’s China-market video and information platforms, and holds some of the licenses they require to operate under local law.

The corporate stakes are the latest move in a multiyear campaign by Beijing to establish a foothold inside influential social-media and news platforms and, more broadly, to tighten control over public opinion on China’s internet.

Beijing has been concerned about the influence that its homegrown technology giants wield through their own media platforms, posing a challenge to the ruling Communist Party and its propaganda apparatus. Since 2016, Chinese authorities have discussed taking shares in online media firms in return for licenses to expand within the sector.

Weibo, a social-media company with 530 million monthly active users in China as of March, said in its filings with the U.S. securities regulator in April last year that a state-backed entity had acquired a 1% stake in Beijing Weimeng Technology Co., Weibo’s main China-based entity.

The deal could give the investor, which is a state-backed entity, “the right to appoint a director to Weimeng’s three-member board of directors, and veto rights over certain matters related to content decision, and certain future financings of Weimeng,” Weibo said in its filings.

Chinese tech stocks popular among U.S. investors have tumbled amid the country’s regulatory crackdown on technology firms. WSJ explains some of the new risks investors face when buying shares of companies like Didi or Tencent. Photo Composite: Michelle Inez Simon

Beyond the stake sales, the Cyberspace Administration of China, the country’s main internet regulator, has dispatched officials to internet media platforms regularly this year, according to people familiar with the matter.

These representatives often act as liaisons between the companies and regulators, for example offering guidance with respect to censoring online content and ensuring government rules are enforced, they said.

The acquisition of such stakes, called “special management stakes,” was first outlined in a Communist Party plenum in November 2013—the same year

Xi Jinping

formally assumed China’s presidency. Since taking power, Mr. Xi has used censorship and draconian rules on internet speech to squelch dissent.

In 2016, the government floated the idea of special shares in a draft proposal to the industry. The government suggested that authorities would take a small stake and a board seat in online news and media companies.

China amended its online information law the following year to require such special management stakes.

Around that time, some internet media firms, including Beijing Tiexue Tech. Co., operator of the nationalistic military portal and forum site Tiexue.net, sold less than 2% of its stakeholding to regulators and a state-backed entity in exchange for a board seat.

Still, those moves were relatively rare. At the time, some companies were reluctant to follow the proposal, worried that bringing the government onboard would jeopardize their relative independence and affect innovation.

In 2018,

Qutoutiao,

a news aggregator that is listed in the U.S., sold a 1% stake to a subsidiary of state-run Shanghai United Media Group and allowed the state firm to designate one director to the board, according to corporate filings. Qutoutiao didn’t respond to a request for comment.

The two state-linked investors that invested in ByteDance and Weibo are wholly owned by China Internet Investment Fund, run by the Cyberspace Administration of China and the Ministry of Finance, according to corporate filings.

Beyond beefing up content control, China has been extending its efforts to tighten regulations involving internet companies. On Tuesday, it issued new draft guidelines that would prevent its internet companies from engaging in anticompetitive practices such as unfairly blocking rival platforms.

Write to Keith Zhai at keith.zhai@wsj.com and Liza Lin at Liza.Lin@wsj.com

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