Welcome back to TechCrunchs China Roundup! This digest contains the most recent developments in China's tech landscape, and what these mean for people around the globe.
Investor concerns have increased this week as the Chinese government acquired a stake in ByteDance. This is TikToks parent company and one of the largest private internet companies. Amazon's continued crackdown on Chinese sellers is causing many traders in south China to go out of business. The government also passed a comprehensive data protection law, which will be in effect in November.
The state stake
China's grand plan to increase its control over internet giants in the country continues. The Information reported this week that ByteDance's domestic entity sold a 1% stake in April to a government affiliate. Tianyancha also recorded the transaction, which is a public database of corporate information and an official enterprise registration index.
It didn't happen suddenly. As early as 2017, Beijing was considering small shares in private tech companies. The Wall Street Journal reported that regulators were considering taking 1% stakes at companies such as WeChat operator Tencent and Twitter-like Weibo, and YouTube-like Youku.
According to Weibo's filing to the U.S. securities regulator, WangTouTongDa (a subsidiary of China Internet Investment Fund) purchased a 1% stake for 10 million Yuan in Weibo in April 2020. In its filing, Weibo didn't mention WangTouTongDas relationship to the state.
Similar to ByteDance, ByteDance also sold a 1% share to three entities established by top regulatory bodies: China Internet Investment Fund, China Media Group, controlled the Communist Partys propaganda arm; and the Beijing municipal governments investments arm.
As a result of Beijing's ByteDance move, Marco Rubio, a Republican senator, urged President Joe Biden to stop TikTok from the U.S.
It is unclear how much power Beijing gains from ByteDance taking the small stake, but Weibo's disclosure to investors provides some clues.
Important to remember that both Weibo as ByteDance have stakes in the national operating entity. Many Chinese internet companies set up offshore entities to receive the financial benefits of operations in China. This structure is known as a variable-interest entity (VIE). Beijing is increasingly scrutinizing the structure, which allows Chinese companies to access overseas financing due to China's restrictions on foreign investment.
Weibo stated in the filing, WangTouTongda will be able appoint a director for the three-member board of the Chinese entity. He also has the right to veto certain content and future financings.
ByteDance is likely to have a similar arrangement as its state investor. The Information noted that the government did not acquire a stake in TikTok. This subsidiary is owned by an offshore entity, established in the Cayman Islands. Although this should give some relief to U.S. regulators and their concerns about Beijing's influence in Chinese companies overseas, it is unlikely that they will be forgotten.
In fact, the Trump-era bans on WeChat and ByteDance were replaced by the Biden administration's more measured policy that required the Commerce Department review any apps that are tied to foreign adversaries. This was to ensure national security risks.
TikTok is fighting claims that it gives user data to Beijing. ByteDance is currently the fourth largest lobbying spender in America, after Alphabet, Facebook, and Amazon. Beijing's investment will cost the campaign more.
Amazon sellers are being beleaguered
In May, I reported on Amazon's decision to shutter some of its largest sellers in China due to violations of platform rules. These included fake reviews and incentives for customers to leave positive reviews. China's online exporters panicked when the crackdown was announced. It wasn't an isolated attack by Amazon, but rather a long-term war. Although the exact number of Chinese shops affected is unknown, Marketplace Pulse and other industry observers said that hundreds of top Chinese sellers were suspended as of early August.
Amazon will suspend accounts that have been suspended. Amazon will withhold their goods and freeze their deposits. In recent months, thousands of employees were laid off by Shenzhen-based companies. According to a friend of the owner, the suicide of a Shenzhen-based seller who was a large one caused the death of his owner.
Sellers who survived the crackdown said that Amazon's attack would have occurred sooner than expected. The Seattle-based giant now values quality and design over generic products that are purely priced and manipulate of ranking.
The Chinese government took note of these incidents. A Ministry of Commerce official compared the closures to Chinese exporters being like fish out of water at a July press conference.
According to Li Xingqian (director of foreign trade at China's Commerce Ministry), there are differences in the laws, cultures, and business practices across the globe, which means that Chinese companies face risks and challenges when they travel overseas.
We will assist companies in improving their risk management and complying with international trade standards.
Datenschutz
China has passed a comprehensive data protection law that restricts how tech companies can collect user information this week. However, the laws won't likely impact state surveillance. The regulation, which was first proposed last year will go into effect on November 1. You can read more about the rules:
