Meet the New One Percenters of China Tech

150x-1.jpg

Source: Bloomberg Markets

America’s elite got a lot of airtime during the last U.S. presidential election as candidates decried the disproportionate power of the very richest.

In China, it’s not the wealthy that hold the power, but government apparatchiks. Witness the rise and fall of some Chinese billionaires and you learn the real limits of money in the country.

In that paradigm, plans for the government to take 1 percent stakes in Chinese technology companies seem not only plausible but logical.

Tencent Holdings Ltd., Weibo Corp. and Youku Tudou (which is backed by Alibaba Group Holding Ltd.) are being pushed to offer up not only a token holding, but also a direct role in corporate decisions, the Wall Street Journal reported. Alibaba and Tencent currently have just 1.3 percent and 0.8 percent government ownership, respectively, according to data compiled by Bloomberg.

Free-market democrats may rightfully protest the idea, throwing their hands up in disgust at this continued incursion by the government into Chinese corporate and civil society as Xi Jinping solidifies his power going into a second term as president.

But China isn’t a democracy, nor does it operate a free market. Regulation functions more by rule of whim than rule of law, and technology companies swing wildly from national hero to national villain.

Given the extreme protectionism offered by China’s government, including its operation of the Great Firewall, the biggest risk to technology companies isn’t foreign competition or a lack of funding. It’s regulation.

Baidu Inc. and Tencent have both been at the receiving end of sudden regulatory incursions — to their ads and games businesses — without any clear breach of law. And the idea of government stakes in internet companies was first mooted more than a year ago.

If such capriciousness is to continue, and I’ve every belief that it will, then the subjects of this irregular regulation may as well bring the government on board. Company executives might bristle at the idea, as well they should, but the trend toward greater government involvement isn’t going to be reversed just because a few wealthy founders and their public shareholders don’t like it.

These billionaires aren’t China’s one percenters. Government representatives, with their 1 percent stakes and louder voices, have that distinction.

Having them inside a company, watching how management strives to create useful products, develop better technology, and build sustainable businesses, can only help foster understanding. Maybe the one percenters will learn that not every private company is a potential enemy of the state.

Perhaps it’s naive to hope that getting close to regulators will help influence policy or create wiggle room. But it’s naive to believe you can get better results without trying.

If there’s one rule that Western and Chinese one percenters have in common, it’s the benefit of keeping your friends close and your enemies closer.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Source: Bloomberg Markets