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China’s Golden Tech Grab

The authorities’ effort to discipline Chinese tech firms over the last 18 months has been clumsy and highly costly, featuring a raft of opaque and unpredictable regulations. But the approach the government seems poised to replace it with is not much better.

HONG KONG – Hopes are rising that China’s embattled tech giants will finally get a reprieve from the severe legal and regulatory crackdown that has wiped out over $1.5 trillion of their shares’ value. Amid mounting challenges to economic growth, some Chinese government officials have signaled a possible shift to a new strategy: the acquisition of a 1% equity stake – or a so-called golden share – in major tech firms. But will this approach really brighten the outlook for China’s tech industry?

A new approach is certainly needed. The authorities’ effort to discipline Chinese tech firms over the last 18 months has been clumsy and highly costly, featuring a raft of opaque and unpredictable regulations. The abrupt suspension of Ant Group’s initial public offering in late 2020, the record antitrust fines imposed on Alibaba and Meituan, and the surprise cybersecurity investigation into Didi Chuxing all spooked investors and sent share prices tumbling.

China’s government now seems to hope that the golden-share arrangement will give it the information and influence it craves while avoiding the economic costs of ham-fisted regulations. A 1% equity stake would normally enable the state investor to appoint a director to the board, ensuring insider access to important corporate decisions and the power to veto them. This would go a long way toward assuaging government fears of the “disorderly expansion of capital.”

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