For Tencent, Game Over?

September 1, 2018, 2:23 PM UTC

The big story in China’s tech sector this week was Beijing’s renewed clampdown on online games, which sent shares of Internet giant Tencent Holdings into a tailspin.

On Thursday, a report from China’s Ministry of Education blamed the proliferation of mobile phones and other gadgets for a surge in near-sightedness among the nation’s youth. The ministry called for sweeping restrictions on online games, including a new system for age ratings and strict limits on the amount of online playtime for minors. Shares of Tencent, the world’s biggest online game distributor, sank more than 5% in Friday trading.

Beijing has been ratcheting up pressure on Tencent and other online gaming companies all year. Regulators haven’t approved the sale of any new games or in-game apps since March. In early August, they forced Tencent to pull “Monster Hunter: World,” a game that allows players to pose as hunters stalking fantasy creatures in exotic lands. “Monster Hunter” was developed by Japan’s Capcom and distributed on Tencent’s WeGame platform. Regulators, apparently, considered it too violent.

Days later, Tencent stunned investors with an announcement that it had missed its quarterly earnings targets and posted a drop in profit growth for the first time in more than a decade. Tencent president Martin Lau attributed the company’s lackluster performance to bureaucratic reshuffling within the government, which he said had slowed approval of licenses needed to sell in-game apps.

But it’s increasingly clear Tencent’s troubles are part of a broader effort to impose discipline on Chinese Internet firms. Under orders from president Xi Jinping, China has tightened censorship, banned virtual private networks, decried the sale of counterfeit goods online. New York Times correspondent Raymond Zhong points out that China’s state-owed Xinhua news service reported this week that Xi felt moved to address the near-sightedness problem after reading about it in the press—suggesting China’s “core leader” himself is behind the anti-gaming crusade.

As the father of a 12-year old boy, I like the sound of this new policy—though I fear the empirical evidence offered in support of it seems a little fishy. I can think of another possible culprit for near-sightedness: homework, which Chinese kids do loads more of than their American counterparts. Whatever the justification, the gaming crackdown is taking a heavy toll on one of China’s largest and most innovative tech players. Tencent’s share price has plunged more than a third since its high in January, wiping out more than $160 billion in market capitalization.

Economy and Trade

Third for trade. In an interview with CNBC, Treasury Secretary Steven Mnuchin claimed China was “supporting” its currency, rather than manipulating it. The comment contradicted remarks made by President Trump during an interview with Reuters last week. Mnuchin also laid out the Trump administration’s priorities in regards to negotiating trade agreements. Striking a deal with China was at the bottom of the list, beneath reaching deals with Mexico and the E.U. Inkstone

Hillhouse left hungry. Yum China rejected a $17 billion buyout from a consortium led by Hillhouse Capital. Yum Brands, which licenses  KFC, Pizza Hut and Taco Bell, spun off its China division in 2016. The unit had been facing a lot of headwind, including scandals over tainted meat, a surge in local competition and the rise of delivery services. Wall Street Journal

Biotech blip. Ascletis, a Chinese drug maker, debuted in Hong Kong this week, taking advantage of a new law for biotech IPOs. The law, introduced in April, permits pre-profit and pre-revenue biotech firms to list on the Hong Kong exchange. Ascletis is the first to come to market but several other drug companies have registered with the exchange. Shares in Ascletis, which went public on Wednesday, rose over 6% in intraday trading, but ultimately closed at their opening value of HK$14 per share. Caixin Global

Innovation and Tech

Didi tragedy. A female passenger using Didi’s carpooling service, Hitch, was raped and murdered by her driver. It is the second such incident in the last three months. Didi has since suspended the service and apologized for failing to prevent the tragedy. Authorities lambasted the ride hailing company, pinning it with “unshirkable responsibility” for the passenger’s death. It emerged that a different passenger had complained about the driver’s behavior a day earlier. Worried citizens have since been downloading an app that allows users to make video calls to the police. The app, Police 110, briefly topped the App Store’s download rankings, but it doesn’t actually work yet. Abacus

Gearing up. Electric car manufacturer Nio is preparing for an IPO in the U.S. that could value the company at $8 billion. Nio, which is backed by Tencent is seeking to raise $1.5 billion in an updated prospectus. The company, formerly known as Next EV and also known as Blue Sky Coming, has developed two car models – one a superfast land speeder, and the other a commercial vehicle which went to market in June. As of August, it had delivered over 1,300 units. South China Morning Post

Coming out. Grindr, one of the most popular dating apps for gay men, is planning a New York IPO. The company, developed in California, was bought by Chinese online games company Kunlun in 2016. According to its IPO filing, Grindr has been consistently profitable for the past three years. Financial Times

Speeding ahead. Geely, now China’s largest auto manufacturer, is planning to develop another plant with a 250,000-unit production capacity to manufacturer larger cars. The new factory would help the Zhejiang-based car maker, which also owns Volvo, to achieve its goal of selling 2 million vehicles by 2020. Reuters

In Case You Missed It

Vietnamese website taunts Chinese drama fans with South China Sea quiz Reuters

“Big Chinese” is edtech’s next big thing, but its path overseas is unclear TechNode

Taiwan grateful to United Airlines for imaginative website solution to ‘one China’ rule South China Morning Post

Bloomberg Moves New Forum for Elites From China Amid Fallout of Trade War New York Times

China’s Jiangsu Province Wins Damages Against Chemical Firm in First Such Case Yicai Global

Huawei Is Named China’s Biggest Private Firm Yicai Global

Why Australia banned Huawei from its 5G telecoms network Financial Times

Politics and Policy

Hacked off. In a tweet, President Trump alleged that Chinese agents had hacked into Hillary Clinton’s email servers. The comment appeared to have been informed by an article in the Daily Caller, which was later covered by Fox News. Following the tweet, an FBI official refuted the claim and stated that “the FBI has not found any evidence that [Clinton’s] servers were compromised.” Chinese Foreign Ministry spokeswoman Hua Chunying also refuted the claim. The Independent 

Afghan allies. China is helping Afghanistan establish a “mountain brigade” in the Wakhan Corridor, a 350km stretch of inhospitable desert that connects Afghanistan’s northern Badakhsan province to China’s western Xinjiang province. The move aims to boost counter terrorism efforts. A report initially claimed that China planned to build a military base in the region, but China has since denied that. The report also claimed Chins would dispatch troops to the base, but the Afghan embassy stated there will be “no Chinese military personnel of any kind on Afghan soil at any time”. South China Morning Post

IP protocol. Speaking during a meeting in Beijing with Francis Gurry, director general of the World Intellectual Property Organization, Premier Li Keqiang announced that China would adopt “stricter” intellectual property rights laws and stressed that China does not allow “mandatory technology transfers”. Upset over weak IP rights and forced tech transfers have been at the heart of America’s ongoing tariffs against China. GB Times


This edition of CEO Daily was edited by Eamon Barrett. Find previous editions here, and sign up for other Fortune newsletters here.

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