Alibaba, Tencent, Xiaomi are backers of IPOs in the US

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Banners for digital payment services Alipay by Ant Group, a subsidiary of Alibaba, and Tencent’s WeChat Pay are displayed outside the currency exchange in Hong Kong, China, Tuesday, September 1, 2020.

Chan Long Hee | Bloomberg | Getty Images

BEIJING — As China’s antitrust and data security crackdown creeps into curbs on initial public offerings in the United States, analysis shows that some of the country’s biggest tech companies are investing deeply in those offshore stock offerings.

Gaming and social media giant Tencent is by far the corporate controlling shareholder, holding large stakes in half of the 25 largest fundraising by Chinese companies issuing American Depositary Receipts (ADRs) in the United States since 2017. That’s according to a CNBC analysis of data publicly accessible. By Wind Information and S&P Capital IQ.

The analysis found that Chinese e-commerce giant Alibaba has a few shares in the list of 25 companies, while other major Chinese tech companies such as Xiaomi, Meituan and Baidu have stakes in one or two of the shares. It has also appeared frequently, usually with smaller stakes, as US asset managers BlackRock and Vanguard.

While Shenzhen-based Tencent is best known for its video games and the ubiquitous WeChat messaging app in China, the company has also grown into an investment giant.

Tencent’s holdings in publicly listed companies rose last year by 785.11 billion yuan ($122.7 billion) — more than 160 billion yuan ($25 billion) in reported profit for the year, according to the company’s annual report. This does not include affiliates.

The company itself is the largest listed company in Hong Kong by market valuation.

Tencent said Saturday that it was informed by the market regulator of its “decision to discontinue the merger of Huya and Douyu based on the results of an antitrust review.” Both companies are Tencent subsidiaries that have been listed in the United States in the past three years.

However, China’s market regulator revealed on Tuesday that it had approved Tencent’s deal to privatize US registered search engine and text entry company Sogou.

intensification of regulation

For many startups in China, having a large tech company as a backer often means access to massive amounts of data about consumer preferences.

But China’s Internet industry has also been tough. In a 2018 book called “The Superpowers of Artificial Intelligence, China, Silicon Valley, and the New World Order,” former Chinese head of Google Kai-Fu Lee said the local tech world is like gladiator battles where nothing is off limits, from copying innovations to launching smear campaigns.

After years of loose regulation, China has intensified its crackdown on domestic tech giants in the past few months.

Read more about China from CNBC Pro

Didi – which Tencent has invested in – held a massive initial public offering in the US on June 30. Within five days, the Chinese cybersecurity regulator, citing national security concerns, launched an investigation into the use of data by Didi and subsidiaries of two Chinese companies recently listed in the United States.

The regulator, China Cyberspace Administration (CAC), said new user registrations will be suspended in the meantime.

Over the weekend, the CAC also announced that companies with data on more than 1 million users will likely need approval before being listed overseas.

The increased scrutiny of the data came on the heels of a regulator’s crackdown on tech companies since last fall over monopolistic practices, which resulted in authorities fined Alibaba $2.8 billion.

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