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SECURITY

Tencent’s investment in Rakuten triggers gov’t concern over security

  • April 1, 2021
  • , Asahi , p. 4
  • JMH Translation

By Naoyuki Fukuda

 

On March 31, Rakuten acquired 65.7 billion yen from a subsidiary of China’s major IT corporation Tencent, thus completing as planned a capital increase of 240 billion yen. The additional capital will be used for facilitating communication base stations operated by its subsidiary, Rakuten Mobile.

 

Tencent is the operator of WeeChat, a chat application that boasts 1.2 billion users. With the investment, Tencent became the sixth largest Rakuten shareholder with a shareholding ratio of 3.65%.

 

Rakuten said it is considering cooperation with Tencent in digital trading but explained to the Asahi Shimbun that the investment is not earmarked for any particular project.

 

Meanwhile, Rakuten’s tie with Tencent has triggered the concern that with regard to data protection it may negatively affect Rakuten’s U.S. operation. “No information flows between Rakuten and shareholders,” said Rakuten. “Furthermore, the shareholders are not involved in management or the handling of data. We don’t foresee any issues.”

 

Government concerned about security risks

 

Some in the Japanese government are concerned about security risks associated with the Tencent’s investment in Rakuten.

 

According to multiple sources, the government had not been informed of Tencent’s investment in Rakuten beforehand. The Suga administration has instructed relevant sections to look into the deal following Rakuten’s announcement and immediately warned Rakuten that the investment from Tencent may invite risks in Rakuten’s business involving the U.S.

 

Tencent is one of the corporations in China that is an example of the competition  for hegemony that is heating up between the U.S. and China. In the past, former President Donald Trump attempted to ban Tencent’s chat application by an executive order.

 

In 2019, Rakuten announced a capital and business alliance with Altioster Networks in the U.S., pending approval of the Committee on Foreign Investment in the United States (CFIUS). Altioster is said to have the “technological edge” in developing the 5G high-speed communication standard. It is CFIUS’s responsibility to report to the president any investment in the U.S. that could negatively impact U.S. national security. In the past, the former Trump administration ordered a Chinese corporation to relinquish control of a U.S. company [based on the CFIUS report] that the Chinese had already purchased.

 

Because of Rakuten’s connection with Altioster, the Japanese government is watching closely for any reaction from the U.S. government concerning the Tencent’s investment in the Japanese company, while reassuring the U.S. side in recent talks that appropriate measures will be taken to prevent leakage of technology and private information. Chief Cabinet Secretary Katsunobu Kato said during a press conference on March 30 that the risk of information leakage is hypothetical, and he wouldn’t comment on it. “It goes without saying that we will take steps based on law to alleviate any concerns,” Kato stressed.

 

According to a government source, the subsidiary of Tencent hadn’t pre-registered the investment in Rakuten in accordance with the revised foreign exchange law. For a company to be exempt from the pre-registration requirement, it must meet the condition that “it will not access technological information that is not made public.” The government will ascertain in cooperation with the Ministry of Finance whether there was a violation of the law . (Abridged)

 

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