Chinese internet giant Tencent’s investment in Japanese tech firm Rakuten will be “monitored for national security implications,” Japanese government officials told their US counterparts prior to the meeting between the two nations’ leaders on Thursday, Nikkei reported.

Why it matters: Chinese tech companies’ overseas investment activity faces increasing scrutiny as the US pushes for a tech alliance with allies.

Details: Japanese officials briefed the US National Security Council on Tencent’s March investment in Rakuten, a Japanese e-commerce and telecommunications service provider, Nikkei Asia reported on Thursday. 

  • Rakuten announced on March 12 that it planned to raise a total of JPY 242.3 billion (around $2.2 billion) by issuing new shares to investors including Tencent, Japan Post Holdings, and US retail giant Walmart.
  • Tencent, through its Image Frame Investment subsidiary, paid JPY 65.7 billion on March 31 to acquire a 3.7% stake at Rakuten, according to Nikkei.
  • Japanese officials worried that the investment might run afoul of an executive order signed by former US President Donald Trump in January which banned transactions with eight Chinese apps including Tencent’s WeChat Pay over national security concerns.
  • Tokyo will “closely monitor” the tie-up to see whether Tencent has access to non-public technology, sources told Nikkei.

READ MORE: Before the bans, China tech investment turned away from US

Context: Rakuten is an online retail company founded by Japanese billionaire Hiroshi Mikitani. The company also runs a telecommunications business. It launched its 5G service in September.

  • Japanese Prime Minister Yoshihide Suga is set to meet with US President Joe Biden in Washington on Thursday. 
  • Biden has upheld the Trump administration’s tough policies on Chinese tech firms. Biden’s government last week imposed sanctions on seven Chinese supercomputer developers, barring them from acquiring US technology.

Writing about semiconductors and telecommunications.