Chinese Tech Companies Warned Of Tighter Rules on Investments

"SINGAPORE -- China has notified some companies of new rules that would require the country's biggest internet firms to seek approval for investment deals, a mechanism that is likely to curb domestic technology giants from growing even bigger through acquisitions, according to people familiar with the issue.

The country's top internet regulator, the Cyberspace Administration of China, recently told some companies that it would establish a new mechanism that requires internet companies to obtain formal approval for investment deals if they have 100 million users or more or have posted revenue in the previous year of at least 10 billion yuan, equivalent to $1.57 billion, the people said.

The regulator notified some companies of the rules this week, some of the people said. The rules are still under review and could change, people familiar with the matter said.

The move to establish new requirements comes after a year of clampdowns on the country's internet sector and could lead to increased regulatory scrutiny into such deals and even block internet companies from making certain investments, the people said.

The new rules being planned would affect China's biggest technology companies, including Tencent Holdings Ltd., Alibaba Group Holding Ltd. and ByteDance Ltd., each of whose products boast more than one billion active users.

The Cyberspace Administration of China, on its official account on the social-media platform WeChat, said it hasn't publicly announced any new rules. Tencent and Alibaba didn't respond to requests for comment.

Beijing-based ByteDance, which operates the popular short-video mobile platform TikTok, said Wednesday that the company was dismantling the strategic investment team, which serves as its corporate venture-capital arm.

People familiar with the matter said that the decision was made in response to the new rules and that dozens of employees within the team were being either transferred to other positions or laid off.

Asked whether the decision came in response to the new rules being planned, a ByteDance representative said it was made earlier this year to "strengthen the coordination between strategic research and the business."

For decades, many Chinese technology companies have grown bigger through acquiring startups -- a similar strategy used by some American counterparts.

In recent years, Chinese leaders -- who have criticized "the disorderly expansion of capital" in the country -- have increased scrutiny into the country's internet sector, which they see as too big and powerful. Among their concerns were the companies' grip on data of billions of people, which officials believed could lead to manipulation of public opinion or pose cybersecurity risks." [1]

1. Chinese Tech Companies Warned Of Tighter Rules on Investments
Zhai, Keith. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 20 Jan 2022: B.1.