Turns out that Tencent has actually lost more money in the past nine months with their market cap cut nearly in half, falling from an all-time high of over US$916 billion to US$550 billion.
How have Tencent and Alibaba been affected by the Chinese government crackdowns?
- These past nine months have gone relatively smooth for Tencent Holdings Ltd. when compared to Alibaba Group Holding Ltd., whose leader sort of dropped off the grid at the end of last year.target
- Alibaba had to pay a US$2.8 billion fine after an antimonopoly probe back in April said that the company was abusing its market dominance.
- In response, Alibaba said, “Alibaba accepts the penalty with sincerity and will ensure its compliance with determination. To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems and build on growth through innovation,” the company said at that time.
- While this fine is a pretty shockingly large bill for Alibaba, it turns out that Tencent has actually lost more money in the past nine months with their market cap cut nearly in half, falling from an all-time high of over US$916 billion to US$550 billion.
- During this time, Pony Ma’s personal wealth has also dropped by almost US$14 billion since November of last year, the time when the Ant IPO was suspended.
Why’s the Chinese government cracking down on tech giants?
- The Chinese government has not given a direct response regarding why these crackdowns are occurring, but some believe that big tech needs to be reigned in regardless of any political actions.
- Charles Mok, who was the legislative councilor representing the Information Technology Functional Constituency in Hong Kong from 2012 to 2020, believes that the Chinese government is fearful of the United States gaining access to state-sensitive media.
- “These fears might seem paranoid, especially to those who don’t assume financial regulators will engage in political and economic hostage-taking tactics,” says Mok. “But for a government that views China’s private companies’ data almost as a state asset, the risks must seem stark.”
- China also isn’t the only country cracking down on big tech with the US also issuing out investigations and probes on Facebook Inc., Amazon.com Inc. and other US-based tech giants.
- Part of the reason for the Chinese government’s crackdowns is because, according to Mok, “China also would not mind to be seen as an example for a playbook for the West, as the U.S. contemplates what to do about its own big tech.”
What are the current criticisms aimed at Tencent?
- State-led newspaper Xinhua News Agency released and then later deleted a post that targeted the video game industry, describing video gaming basically as a drug that corrupts the soul, which is harming the country’s teenagers.
- “‘Spiritual opium’ has grown into an industry worth hundreds of billions," the newspaper said. “No industry, no sport, can be allowed to develop in a way that will destroy a generation." The piece also singled out Tencent as a source of the problem.
- The article was later removed because it apparently didn’t represent Beijing’s official stance.
- By that time though, the damage was already done, and Tencent’s stock began to plummet. Fundamentally, investors were worried that the video gaming industry was the next target for the Chinese government crackdown, with the selloff leading to the company losing around US$60 billion.
What did Tencent do in response?
- Tencent immediately began making a response to the article by stating their compliance, but whether or not they agreed with the stance or just simply wanted to protect their crashing profits is uncertain.
- The company announced that it would introduce new measures to reduce the access time for minors specifically in one of their games called “Honor of Kings,” while also preventing players under the age of 12 from spending money in the game.
- In a surprising move, the company called for an industry ban for children under 12, which would prevent them from playing games entirely.
- They also announced that they would eventually implement the payment and time restrictions in “Honor of Kings” for all of their games.
- “We hope we can help children develop a healthy gaming habit, and we are doing our best to reduce family problems stemming from kids’ gaming activities,” Tencent said in a statement.
What’s next for Tencent?
- According to Hu Xijin, editor of state-led media Global Times, it seems as if the article criticizing Tencent was misunderstood and misrepresented by some, calling it an “over-interpretation.”
- “I can hardly imagine that the authorities would just simply ban online gaming once and for all,” Hu wrote on his WeChat account.
- But, it seems as if the company has little to worry about today with their stock price recovering in value since the incident.
- On top of that, the article that led to this massive sell-off was deleted and later published again a few hours later, with the terms “spiritual opium” and “electronic drugs” removed from the article.
- To add to the drama though, on Friday, WeChat (China’s WhatsApp), which is also owned by Tencent said that it would also inspect it’s “youth mode” on its messaging platform after Beijing prosecutors opened a civil public-interest lawsuit against Tencent saying that it’s youth mode didn’t comply with laws protecting minors.
- But, it seems as if that as long as the company remains compliant with government regulations and expectations, Tencent should expect to stay on the good side of the Chinese government for now. And, since state-media has softened their tone on gaming, Tencent’s value has seen more than 5% rise, but the stock is still 17% lower for the year
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