How does having minority stakes and board seats give the Chinese government effective control over companies?

Question

From the New York Times:

All of that changed over the past few years as Beijing went after some of the country’s biggest tech companies and its highest-profile tech entrepreneurs. The aim was to ensure no institution or individual could wield influence on the Chinese society comparable to the Communist Party. The government took minority stakes and board seats in some of those companies, giving it effective control.

This doesn’t make any sense to me since you need the majority of shares in order to control a company. Of course, the Chinese government could interfere at will, but having a minority stake doesn’t really change anything about that. (The same could be said about the U.S. government, except the U.S. government is less likely to go against the private sector.)

Can someone explain the above?

Answer 1

It's probably talking about "golden shares", more officially called "special management shares":

The move to take stakes in the local operations of Alibaba and Tencent, which usually amount to about 1%, have been dubbed “golden shares” as they come with special rights over business decisions.

Within China the stakes are known as “special management shares” and have been used since 2015 by the state to exert influence.

Now I don't have a very good/detailed source on what those special rights actually are, but they seem to involve outright veto on some matters, according to some Western press:

The so-called golden shares, or special management shares, generally allow the state-backed entity to install a board member with the power to veto decisions — for the company the entity has taken a 1% stake in.

Some Bloomberg columnists speculate that this is done so in order to reduce the appearance of regulatory overburden, i.e. exert state influence in a less transparent way.

An older (2021) paper says:

Official documents indicate that special management shares are a class of equity shares with special governance power or greater voting rights than ordinary shares. The first purchase under this scheme occurred in 2016, when the official CCP newspaper People’s Daily acquired 1 percent of a Beijing-based Internet company and installed a “special director” on the board who possesses veto power over content.

The latter company appears to have been the somewhat obscure Beijing Tiexue Technology.

Answer 2

With regards to votes within a board of directors, these are fairly transparent.

Traditionally, board of director voting procedures entailed asking for a show of hands or a verbal aye or nay. In rare situations involving confidential or sensitive matters, board chairs might set up a secret ballot.

Ask yourself, if the CCP's board representative says to vote one way, would you... vote the other?