According to an official document released on October 27 by the Anti-Monopoly Bureau under China’s State Administration for Market Regulation (SAMR), internet giant Tencent and state-owned telecommunications operator China Unicom have gained unconditional approval to establish a joint venture following the completion of a review on October 18. Affected by this news, China Unicom’s A shares rose on Wednesday afternoon to reach their daily limit. Meanwhile, as of 15:00 on November 2, China Unicom’s H shares had risen slightly by 1.2%, and those of Tencent Holdings were up by 1.4%.
According to public information, the newly established joint venture will be mainly engaged in the content delivery network (CDN) field and edge computing. It will be jointly controlled by subsidiaries of each firm, namely Shenzhen Tencent Industry Venture Capital and Unicom Innovation Venture Capital. After the transaction is completed, China Unicom, Tencent and an employee stock ownership platform will respectively hold 48%, 42% and 10% of shares.
The development has led to concerns over even greater government influence on China’s Big Tech. Some netizens went as far as speculating Tencent will eventually be de-privatized. This reaction is expected given China has been tightening its grip on the internet industry over the past three years. Tencent’s gaming business, for instance, took a big hit when Beijing halted the issuance of new gaming permits.
But a closer look at the notice suggests this new “mixed ownership” entity seems to have a limited impact on Tencent’s existing business. The entity, according to a filing in September, will center around two areas: content delivery network and edge computing. CDN refers to a geographically distributed network of servers that work together to speed up content distribution for users, whereas edge computing means processing data at the periphery rather than the center of a network.
In August, 2017, China Unicom released a mixed-ownership reform plan, which became the focus of attention as it belongs to the first batch of basic telecom operation pilot enterprises with mixed-ownership reform conducted by state-owned enterprises in fields exhibiting monopolistic tendencies. It is believed that the competitiveness of state-owned telecommunications enterprises will be greatly enhanced by introducing strategic investors with synergy and leading advantages. In the same month, a subsidiary of China Unicom signed formal strategic cooperation framework agreements with Tencent, Baidu, JD.com and Alibaba in Beijing.
It is worth mentioning that reports surfaced on October 31 that a consortium headed by CITIC Group, one of China’s largest conglomerates, was in discussion with Naspers, a major shareholder of Tencent, to acquire its shares in full and win a controlling stake in Tencent. On November 1, Prosus, the largest shareholder of Tencent and a wholly-owned subsidiary of South African multinational internet, technology and multimedia holding firm Naspers, responded, calling the report “speculative and untrue.”
At noon on the same day, Zhang Jun, General Manager of Corporate Marketing and Public Relations at Tencent, reposted a song named “Gossip” to his private social media account, writing, “Gossip goes around. I don’t know when it can stop.” According to Yicai, people close to CITIC’s investment department have flatly dismissed the notion of CITIC Group having plans to acquire Tencent shares.
Furthermore, rumors previously emerged that China Mobile, a multimedia services provider with a nationwide mobile telecommunications network, might take a stake in Tencent, although this possibility has been denied by the latter.
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