China's government bought a 1% stake in the main domestic unit of TikTok owner ByteDance in 2021. This ownership stake has come under scrutiny in a recent congressional hearing as US lawmakers consider a TikTok ban. During the hearing, a lawmaker asked if the Chinese Communist Party owned a "golden share" in ByteDance that gives it control over a board seat. TikTok CEO Shou Zi Chew said that wasn't correct and that the Communist Party has no voting rights in ByteDance. However, the details are more complicated.
Golden shares are officially known as "special management shares" and cropped up in 2013 as a way for the Chinese government to loosen control over the business sector without giving it full autonomy. These shares often provide a seat on the board and influence over business decisions. The government uses golden shares in place of more explicit measures to keep its tech sector in check.
The ByteDance unit that sold golden shares to China's government holds the licenses of Toutiao and Douyin to operate under local law. Wu Shugang, a government board appointee, has a say over "business strategy and investment plans," any merger deals, how to allocate profit, and a vote on the top three executives plus their compensation. Wu also has the power to control content at Toutiao and Douyin, the ability to appoint and dismiss the unit's top censor, and the right to lead a "content safety committee" or name its chair.
For its part, TikTok has maintained that it is separate from ByteDance. However, the government's purchase of the golden shares was partly intended to give Beijing a say in what happens to TikTok's algorithm, which recommends videos to users, namely in preventing its sale or transfer. Meanwhile, TikTok faces investigations from the FBI and Justice Department over claims it surveilled journalists who used TikTok. The political sentiment is so skewed against TikTok that Wedbush's Dan Ives sees a 90% chance it will be banned in the US, unless it goes through with an IPO or gets bought out by mega-cap tech giant.