News about Tencent and China Unicom caused a stir in the Chinese tech industry on Wednesday afternoon. The gaming and social media giant and the public carrier have received regulatory approval to form a joint venture, according to a government announcement.
Following the transaction, Tencent and China Unicom will own 42% and 47% of the company respectively.
The development has raised concerns of even greater government influence over China’s big tech. Some netizens have gone so far as to speculate that Tencent will eventually be deprivatized. This reaction is expected given that China has tightened its grip on the Internet industry over the past three years. Tencent’s gaming business, for example, was hit hard when Beijing halted the issuance of new gaming licenses.
But a closer look at the notice suggests that this new “mixed ownership” entity appears to have limited impact on Tencent’s existing business. The entity, according to a file filed in September, will revolve around two areas: the content delivery network and advanced computing. CDN refers to a network of geographically distributed servers that work together to accelerate content delivery for users, while edge computing means processing data at the edge rather than at the center of a network.
Tencent’s cloud computing branch seems the most relevant for the new JV. The enterprise segment has taken on new importance as a source of revenue since China’s regulatory crackdown sent chills through the consumer internet sector. And it is in the area of web infrastructure that Tencent’s involvement in the public sector has been most active.
Tencent Cloud has a page dedicated to showcasing the kind of public services it enables. From online government services to community centers with self-service kiosks, one can find solutions provided by Tencent – and in fact, Alibaba, Baidu and other tech giants suit us well. Beijing has been working on digitizing the machinery of government for years, and what better solution providers are there than its own tech darlings?
Tencent bragged about WeChat’s role as a digital infrastructure for government services as early as 2019:
The WeChat owner is also no stranger to cross-ownership. In 2017, China Unicom was seeking to raise $11.7 billion from a dozen investors – including Tencent and Alibaba – as part of Beijing’s efforts to revitalize state-owned companies with private capital, a structure called “ownership”. mixed”.
Working with a public entity does not naturally imply a greater visible hand presence at Tencent. The objective of a public company is also to generate profits for the government. But undeniably, China’s private tech sector is under increasing pressure to align its interests with those of the state through a series of regulatory overhauls, often at the expense of their profitability. Ant Group has undergone a major restructuring to play more like a traditional financial institution. Tencent has strengthened the protection of minors and put more effort into educational games.