TikTok Parent's Founder Is Latest China Tech Boss to Step Down Amid Government Crackdown

05/20/2021 | 10:48pm

By Liza Lin in Singapore and Yoko Kubota in Beijing

The move by the founder of TikTok's parent company to step down as chief executive makes him the latest in a series of Chinese internet entrepreneurs to leave the spotlight as authorities tighten the reins on the nation's tech giants.

ByteDance Ltd., one of the world's most valuable closely held tech companies, said Thursday that CEO Zhang Yiming, an engineer by training, would step aside to focus on long-term strategy. Co-founder Liang Rubo was appointed as his successor.

The departure of Mr. Zhang, 38, the largest single shareholder in a company valued in December at $180 billion, follows the resignations of top executives at financial-tech giant Ant Group Co. and e-commerce company Pinduoduo Inc.

In March, Ant CEO Simon Hu said he would step down, amid heightened scrutiny by regulators, and barely a week later, Colin Huang, the 41-year-old founder of Pinduoduo, one of China's largest online shopping platforms, announced he would vacate his position as chairman to pursue personal interests.

Once seen as powerful and untouchable for their contribution to innovation and economic growth, China's largest internet companies have increasingly come under intense scrutiny by authorities, with regulators coming down since late last year hard on areas such as anti-monopolistic practices and data privacy.

Other high-profile internet founders such as Alibaba Group Holding Ltd.'s Jack Ma and Wang Xing, the head of online delivery juggernaut Meituan, have come under fire for public comments in speeches or social media. Mr. Ma and his sprawling e-commerce and payments empire have been the hardest hit so far, with Alibaba slapped with a record $2.8 billion fine by antitrust regulators in April.

"In this day and age, every internet CEO has to think about the regulatory crackdown," said Ian Goh, the Shanghai-based general partner of 01VC, a venture-capital firm that invests in Chinese technology companies. He described Mr. Liang's appointment at ByteDance as "putting in place a trusted lieutenant, and it gets yourself out of the spotlight."

Incoming CEO Mr. Liang, 38, shares a close relationship with the ByteDance founder. He was Mr. Zhang's dorm roommate at Nankai University, where he graduated with a microelectronics degree. Together, the two also founded a startup focusing on real estate before starting ByteDance in 2012.

"This is a great challenge for me and the pressure is big," Mr. Liang, who is currently its head of human resources and management, said in a letter to employees seen by The Wall Street Journal. "I believe we can continue to make breakthroughs and reach new heights with everyone's cooperation and efforts."

Mr. Liang, who previously served as the company's head of research and development, inherits a company that is facing growing government pressure in China to stay in line.

Beijing-based ByteDance has attracted attention from regulators in recent months over infractions ranging from data use to improper content. The company, which counts Carlyle Group and Sequoia Capital among its backers, also owns and operates a suite of popular apps. They include Douyin, TikTok's sister short-video app in China, news-aggregation app Jinri Toutiao, and business enterprise platform Lark.

In April, ByteDance was among 34 of China's biggest tech companies that made public pledges to comply with the country's antimonopoly laws, shortly after e-commerce giant Alibaba was hit with its record fine.

In March, the antitrust regulator fined a ByteDance subsidiary the equivalent of about $78,000 for having failed to properly report a previous merger. Around then, ByteDance was one of 11 companies ordered to conduct a security review over the use of what is known as deepfake technology, which enables the creation of hyper-realistic fake videos. Meanwhile, the ByteDance subsidiary that operates Douyin was fined twice this year over improper content.

Bytedance was also among 13 companies ordered last month by the central bank and other regulators to adhere to much tighter regulation of their data and lending practices.

Mr. Zhang didn't refer to China's darkening environment for tech companies in a letter to employees on Thursday.

"I believe I can best challenge the limits of what the company can achieve over the next decade, and drive innovation, by drawing on my strengths of highly-focused learning, systematic thought, and a willingness to attempt new things," Mr. Zhang said in the letter, which was posted online by the company. He will remain on ByteDance's board of directors, a spokesman said.

People who work with him say Mr. Zhang is introverted and prefers engineering over handling government relations. ByteDance is expanding into online shopping and education, areas that have come under fresh government scrutiny recently, and the increased government engagement would be unappealing for Mr. Zhang, one senior employee at the company said.

"It's always been the case that a big part of any top CEO's job in China is government relations, and I doubt Yiming is very comfortable schmoozing with officials," said Matthew Brennan, a China tech analyst who has published a book on ByteDance.

Mr. Brennan said ByteDance's overall strategy was unlikely to change and Mr. Zhang had long ago started preparing for a transition. Over the past two years, the founder has gradually transferred management responsibilities to other staff, appointing leaders for its China operations, Mr. Brennan said.

Most recently, Shou Zi Chew, the chief financial officer, was named CEO of TikTok.

Mr. Zhang steered the company through turbulent times in the U.S. The U.S. government last year investigated whether TikTok poses a risk to national security over concerns that China could have access to the personal data of American users; the Trump administration issued an executive order last year that would ban the app unless it found an American buyer.

The order was never enforced and the Biden administration in February shelved plans requiring the sale.

Mr. Brennan said ByteDance would lose a leader known for his cool head and persistence.

"That really helped last year with them holding out and not selling TikTok -- perhaps another CEO would have been more emotional," he said.

--Raffaele Huang contributed to this article.

(END) Dow Jones Newswires

05-21-21 0048ET

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