Since February, Tencent’s capitalization has fallen by $400 billion. How does the company build relations with the Chinese authorities?

The South China Morning Post has started publishing a series of articles about the Chinese gaming industry.

The first article examines in detail the history of complex relations between local gaming companies, authorities and state media. And this problem is directly related to Tencent.

The starting point of recent events was July 2017. Then the state-owned publications People’s Daily and Xinhua published eight articles about Honor of Kings within one week. Tencent’s game was called a “poisonous drug”.

As a result of the actions of the media, the company’s market value fell by $ 17.5 billion. Then the founder and CEO of Tencent Pony Ma (Pony Ma) held a meeting with the editorial staff of People’s Daily.

Details of the negotiations are still not disclosed. However, soon after that, the media pressure on the company eased. As a result, Tencent managed to regain its dominant position and capture 40% of the local gaming market.

Tencent has developed its business in several areas at once, including games, esports and streaming. At the same time, the company strictly complied with local laws and regulations of the authorities regarding the regulation of video games. According to analyst Serkan Toto, this played an important role in the formation of Tencent as a technology giant.

Between the meeting in 2017 and February of this year, the company’s market value almost tripled and approached the cherished mark of $ 1 trillion. The pandemic also affected this, but without a clear strategy and targeted investments in other studios, it would still not have been possible to achieve such indicators.

Now Tencent either owns or has a stake in some of the highest-grossing mobile games in history. This list also includes Honor of Kings, PUBG Mobile and Clash Royale.

Until August of this year, the Chinese media almost did not criticize gaming companies in any way. Instead, local government publications, on the contrary, supported the industry and compared video games with literature and art.

Everything changed when a few weeks ago one of the media compared the games to “spiritual opium”. Neither the companies themselves nor their shareholders expected this.

Other publications rushed to the defense of local developers and publishers, emphasizing that the opinion of one newspaper does not reflect the position of the authorities. However, investors took this as a wake-up call. According to the South China Morning Post, as a result, several Chinese gaming companies lost almost $100 billion in value.

Tencent’s capitalization dropped by $43 billion in a matter of hours. Later, the company was able to recover a little from the fall in shares, but the losses were still significant — since February, the company’s market value has decreased by $ 400 billion. Investors’ concerns were also influenced by China’s recent actions to regulate the technology industry — including the almost complete destruction of the online education sector.

As in 2017, Tencent has moved to decisive action. The company announced new restrictions on the playing time of teenagers in Honor of Kings. According to analyst Daniel Ahmad, she has always reacted swiftly to the actions of the authorities and criticism against her. In particular, Tencent was the first gaming company in China to introduce a special system to combat gambling addiction in its games.

Tencent will surely be able to regain its position again and find a common language with the authorities and the media. However, the company’s strategy of pandering to government regulation of the industry harms smaller developers.

In the period from 2018 to 2019, more than 28 thousand gaming companies closed in China. This was due to the tightened rules for obtaining licenses for publishing games. Although almost as many studios have appeared in China over the past year, experts fear that aggressive actions by the authorities may lead to a new wave of closures.

Now Tencent acts as a bridge between the state and the gaming industry. The company is at the forefront and by its actions sets an example to other developers. In light of recent events, some experts note that Tencent can become China’s mouthpiece in spreading its influence — both domestically and abroad. The presence of controlled studios around the world will also allow the company to become a gaming analogue of Hollywood for Beijing.