Who Owns the Chinese Internet?

Sina.com presents a third model. The president and CEO, Charles Chao, is of PRC origin. According to Sina's latest annual report, he appears to be the largest single shareholder, controlling over 8.66 percent of voting rights. Only one other shareholder holds more than 5 percent of the voting rights. In other words, the shareholding is largely dispersed and there is no controlling shareholder. Since Jing and Wang admit in a 2009 article that Sina.com has no controlling shareholder, how then can they claim at the same time (as they do) that the company is "controlled by international capital"? They state that ownership of more than 50 percent of the shares constitutes absolute control, but this means that some unified will – a single person or a unified group – has to control all those shares. In grammatical terms, the subject of the verb "to own" has to be an entity capable of thinking and expressing a will. "International capital" is not a person with a unified will. The authors appear to believe that in a 10,000,000-share company, if 5,000,001 foreigners each own one share, that is "foreign control" just as much as if one foreigner holds 5,000,001 shares. It is not. One can always identify a group of random and unconnected shareholders in any company whose holdings add up to more than 50 percent; that does that mean that they control the company. When a company has no controlling shareholder, the actual controller is management. And in the case of Sina.com, management appears to be predominantly in the hands of Chinese nationals.

Of course, there may be Chinese internet businesses using the VIE structure in which the offshore company really is controlled by foreigners. I have just looked here at some random prominent examples, including one discussed by the authors themselves, and discovered that the so-called foreign control is an illusion. Moreover, as argued above, even if the offshore company is genuinely under foreign control, it is still far from clear that its contractual relations with the onshore company and the onshore company's Chinese investors are solid and enforceable under Chinese law. In short, the Chinese government still retains its power over the Chinese internet and has yielded little or nothing of importance to foreign interests.

Donald Clarke is a professor at the George Washington University Law School