How China Harnesses Private Tech Giants for Overseas Intelligence Use

Built-in party branches and ‘golden shares’ facilitate the communist regime’s manipulation of high-tech companies

People walk past the headquarters of ByteDance, the parent company of video sharing app TikTok, in Beijing on Sept. 16, 2020. Greg Baker/AFP via Getty Images

The Chinese Communist Party (CCP) is tightening the reins on private high-tech giants by acquiring voting shares or using party branches within the companies as the military’s intelligence assistant. The move to exert greater control over private industries has the United States and EU on alert.

On March 11, Belgium’s prime minister said the country is banning TikTok from government phones over concerns about cybersecurity, privacy, and misinformation. Belgium followed the lead of the United States and the EU in banning the video-sharing app, developed by Chinese internet technology giant ByteDance.

On Feb. 27, the White House gave all federal agencies a 30-day time limit to remove TikTok from government devices. The Office of Management and Budget said the move was a “critical step forward in addressing the risks presented by the app to sensitive government data.” The U.S. Departments of Defense, Homeland Security, and State have already instituted a similar restriction.

On Feb. 23, the European Commission and the EU Council—the EU’s two biggest policy-making institutions—issued a ban on TikTok for employees’ work and personal phones and devices with access to EU Council services.

All those moves directly targeted TikTok’s developer, parent company ByteDance, a Beijing-based private enterprise that has long been dominated by the CCP and used as a tool of its military and intelligence service to target overseas countries.

CCP’s ‘Golden Share’ in Private Companies

A Jan. 13 report in The Financial Times revealed how the CCP controls the country’s high-tech group ByteDance.

In April of 2021, a fund associated with the Cyberspace Administration of China (CAC), along with two other state-owned units, paid 2 million yuan ($290,000) for a 1 percent equity stake in Beijing Douyin Information Service Co., a subsidiary of ByteDance. Through this acquisition, CAC was granted the right to nominate one of three directors of ByteDance.

The 1 percent “golden share” gave the CCP voting rights and influence over business decisions in the private tech firm. “Golden shares” or “special management shares” give their owners—often governments—some level of control over companies.

Wu Shugang, the former supervisor of CAC’s online commentary monitoring department, was subsequently appointed to the board of directors of ByteDance.

Along with a say in ByteDance’s business strategy and investment plans, mergers and acquisitions, profit sharing, and voting rights for the group’s top three executives and their remuneration, Wu also has a say in the content of ByteDance’s Chinese media platforms. These platforms include the news platform “Today’s Headlines” and TikTok’s Chinese version, Douyin. Moreover, Wu can appoint the group’s chief censor, chair its content security committee, or appoint the committee’s chairman.

TikTok CEO Shou Zi Chew testifies before the House Energy and Commerce Committee in Washington, DC, on March 23, 2023. Chip Somodevilla/Getty Images

TikTok Exposed for Leaking US Data  

In 2022, the year after the communist regime bought “golden shares” of ByteDance, TikTok was exposed for leaking data from U.S. users.

Buzzfeed News reported on June 17, 2022, that Chinese employees of ByteDance had repeatedly accessed the non-public data of U.S. TikTok users. ByteDance planned to use TikTok to monitor the personal locations of certain U.S. citizens, according to a Forbes report in October of 2022.

That was despite claims by TikTok executives that they are independent of the Chinese regime, have never been asked to provide data by the Chinese authorities, and would refuse to do so if asked, reported The Washington Post.

The United States and the EU, however, gave little credence to those claims, clearly realizing that private technology companies in China are closely intertwined with the communist regime.

U.S. Secretary of State Anthony Blinken told CBS in February that “in China, there’s no distinction between private companies and the state.”

The CCP’s “golden shares” strategy extends to other Chinese technology companies with an overseas presence as well.

In January, an investment fund entity under CAC acquired a 1 percent stake in Alibaba’s subsidiary Guangzhou Lujiao Information Technology, strengthening control over the e-commerce giant’s streaming video platform Youku and Web browser UCWeb. CAC also appointed a new board member, according to a CNN report.

U.S.-listed companies such as Chinese microblogging site Sina Weibo, media outlet 36 Kr, tech and financial media outlet Qutoutiao, and mobile content aggregator and Hong Kong-listed short-form video app Kuaishou, are among those controlled by golden shares holder CAC, according to the CNN report.

CCP authorities have also been in talks with Tencent, about taking a stake in one of its subsidiaries.

Communist Party Branches at Private Companies

In addition to acquiring golden shares, the CCP secures its grip over private companies by establishing party branches within both state-owned enterprises and privately owned companies.

Internet companies, in particular, are a crucial target in the effort to build party branches. Thriving party branches operate at Alibaba, Tencent, Baidu, and internet shopping platforms Temu and Jingdong. Jingdong’s party branch may be the most massive, with a reported 10,730 members and 154 Party branches nationwide as of 2018. At Jingdong, party members can pay their party dues directly on the internal app.

Logos of Ford and Baidu on a Ford license plate during a press conference ahead of the Shanghai Auto Show on April 3, 2019. Kelly Wang/AFP via Getty Images

Almost all these internet giants are listed in the United States. Meanwhile, ByteDance has an enormous presence in the United States through its subsidiary TikTok, which has more than 150 million active U.S. users.

What threat will these CCP-linked internet companies pose to the United States?

Close Ties Between Intelligence Department and Private Companies

Zach Dorfman, a senior fellow at the Carnegie Council for Ethics in International Affairs, wrote in December 2020 about the growing ties between CCP intelligence and Chinese companies.

China’s national intelligence law, enacted in 2017, required Chinese businesses to work with Chinese intelligence and security agencies when requested to do so.

At the time of Dorfman’s report, the U.S. intelligence community had obtained extensive evidence of coordination, including back-and-forth data transfers between so-called private companies and CCP intelligence, with one Trump-era national security official citing evidence of close public-private cooperation on a “daily basis.”

William Evanina, then director of the U.S. National Counterintelligence and Security Center, told Dorfman that the CCP’s ability to access and obtain data from private companies provides the regime with “vast opportunities to target people in foreign governments, private industries, and other sectors around the world” in order to collect research, technology, trade secrets, or classified information.

The CCP intelligence services ask Chinese technology companies to help them process huge amounts of data, such as data obtained from the hack of the U.S. Office of Personnel Management, Evanina said. This data then quickly flows to CCP agencies.

Dorfman quoted U.S. officials as saying that by using the data processing capabilities of Chinese companies, CCP spy agencies can quickly sift through large amounts of information to find key details of intelligence value. For example, they might cross-check real-time travel intelligence with other information gathered by China’s Ministry of State Security in order to identify an undercover CIA agent.

Chinese companies typically avoid mentioning their relationship with the Party. In public, especially in Western countries, they deny any ties to communist intelligence or military agencies. Huawei, for example, claims that the company is employee-owned. However, domestically, these companies have repeatedly demonstrated their loyalty to the party and have assisted its security services.

Chinese President Xi Jinping (L) is shown around the offices of Chinese tech firm Huawei technologies by its President Ren Zhengfei, in London, during his state visit on Oct. 21, 2015. Matthew Lloyd/AFP via Getty Images

In January 2019, Huawei President Ren Zhengfei insisted to Western journalists that Huawei would never allow the Chinese communist regime to access customer data, even if Beijing asked for it, according to a CNBC report. He claimed that Huawei has never handed over data to the authorities.

But information from Huawei, obtained by The Washington Post in December of 2021, showed the company was actually marketing a variety of surveillance-related services to government agencies. The PowerPoint presentations described services including voice recognition technology, facial-recognition-based surveillance, monitoring of detention facilities, location tracking, workplace tracking tools, and police surveillance in Xinjiang, where the Chinese communist regime has been accused of human rights abuses against Uyghur Muslims. The presentations contrasted with the company’s denials that it has helped the CCP track Chinese citizens.

The Defeat of Free Market Processes

“China’s taking of golden stakes in U.S.-listed companies is a theft of American shareholder value, a threat to U.S. national security, and the defeat of free market processes by a totalitarian regime that should be illegal,” Anders Corr, founder of Corr Analytics and publisher of the Journal of Political Risk, told The Epoch Times on March 11.

“In China, individuals and companies have no protection against the state,“ said Corr, an Epoch Times columnist. Companies have no legal recourse against intelligence services that ”require sensitive information to maintain one’s freedom or the continued operation of a business.”

The move to more tightly link private companies to the CCP “demonstrates the increasing intensity of CCP control over what is left of the private sector in China, as Xi strengthen[s] his lock on the party,”Corr stressed.

That control is a grave threat not only in China but overseas as well. “The more that Beijing is allowed to make inroads into free market processes, the more powerful the Chinese Communist Party becomes, including here at home in the United States.”