Beijing is unlikely to loosen its control over its tech giants. According to a Financial Times report, the Chinese government, through its entities, plans to acquire Golden Shares in the domestic units of Alibaba (NYSE:BABA) and Tencent Holdings Limited (TCEHY). Golden shares typically represent a nominal holding (about 1%) of the firm, give board representation to the owner, and carry veto rights over key business decisions.
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Per the report, an entity of the Cyberspace Administration of China took a 1% stake in Alibaba’s subsidiary, Guangzhou Lujiao Information Technology. This would give the Chinese government greater control over the content in Alibaba’s streaming video unit, as the Financial Times report highlighted. Meanwhile, the state-owned entities could acquire a stake in one of Tencent’s key operating units.
The move comes amid easing regulatory pressure on Chinese companies. Recently, Guo Shuqing, the chairman of China’s Banking and Insurance Regulatory Commission, said that the regulatory crackdown on tech companies is over. The easing of regulatory measures boosted shares of Chinese companies, including BABA and TCEHY, which have gained 28.5% and 15.4% year-to-date, respectively.
As regulatory woes ease, the Chinese government, through tools like Golden Shares, could continue to maintain control over these tech companies.
How these measures will impact the Chinese tech giants remains a wait-and-watch story. Meanwhile, multiple analysts have recently increased their price target on BABA stock, citing the recovery in domestic consumption and expected improvement in gross merchandise volumes.
Is Baba a Buy or Hold?
BABA stock has received 15 unanimous Buys for a Strong Buy consensus rating. Meanwhile, analysts’ average price target of $137.36 implies 21.40% upside potential.
