21 February 2019
Tencent has faced criticism from Chinese state media that the internet giant was not doing enough to combat online video game addiction among the youth. Photo: Reuters
Tencent has faced criticism from Chinese state media that the internet giant was not doing enough to combat online video game addiction among the youth. Photo: Reuters

Tencent walking a fine line between profit and politics

There is a popular view among investors that Chinese tech giant Tencent has become “too big to fall”.

The truth, however, is that given the currently complicated and delicate political environment in the country, even a company as big as Tencent can be “dismembered” overnight by the Communist Party of China (CPC) if it is deemed to cross a red line.

The once powerful Anbang Insurance and Tomorrow Holdings are among some of the best-known examples of how a private mainland company that has failed to toe the CPC line may end up.

On the International Children’s Day on June 1, state news agency Xinhua ran an article slamming Tencent, in a rather strong tone, for remaining indifferent to the adverse effects of online video games on the physical and mental health of children.

The article then went on to criticize the tech giant for saying one thing but doing the opposite when it comes to obeying government orders.

In fact, earlier on May 21, a total of 8 government and party bodies, including the Central Commission for Guiding Cultural and Ethical Progress, the Central Committee of the Communist Youth League of China, the Ministry of Education, and the Ministry of Civil Affairs, issued a joint notice demanding tougher regulation of “online spiritual products”.

Prior to the announcement of that joint notice, the Ministry of Culture and Tourism on April 17 took a heavy-handed move to straighten out the online video game market by blacklisting dozens of popular games, among which 10 were developed and marketed by Tencent.

It wasn’t the first time Tencent’s online video game products were targeted by mainland officialdom.

In July last year, the People’s Daily ran two editorials on two consecutive days blasting Tencent’s mega hit game, King of Glory (王者榮耀), for “spreading negative energy among society” and “poisoning people’s life”.

There are a couple of reasons why Tencent, a company founded in 1998, could quickly expand into a half-a-trillion-dollar tech goliath in just 20 years’ time: its exceptional ability to absorb (or plagiarize) the experience of its foreign counterparts, and government protection and support.

In particular, the rapid growth and market domination of Tencent probably would not have been possible if Beijing had allowed other colossal global tech companies such as Google, Facebook, WhatsApp and Amazon to enter the mainland market freely.

Over the years, Tencent’s key to success is to give priority to pleasing the government over making profits.

There has been a prevailing myth among the public that Pony Ma Huateng, founder of Tencent, is an engineer and is therefore completely at a loss about politics.

However, I can tell readers that this is definitely not true. One should give this a thought: Would it have been possible for Tencent to become so big and successful if Pony Ma wasn’t good at politics?

Let me provide an example here. Shortly after the mainland authorities had declared open season on King of Glory, Tencent seized the opportunity presented by the 19th CPC National Congress and launched a new online video game known as “Clap for Xi Jinping” in an apparent effort to kiss up to him.

In fact Tencent has always remained a highly politically aware company which is good at doing the right thing at the right time in order to please CPC leaders.

According to an article published by the mainland magazine Southern Biweekly last year, Tencent started facilitating the establishment of CPC organs within its company structure in 2003, and set up its own party committee on company level in 2011.

At present, among its 30,000-plus employees, there are over 7,000 CPC members, 60 percent of whom are holding key positions in the company.

In total, there are currently 12 sub-branches and 116 party organs under Tencent’s CPC committee, managing party members in the company headquarters in Shenzhen, as well as those in its branches in Beijing, Shanghai, Guangzhou, etc.

As the leading tech company in the mainland, Tencent is perfectly aware that both the company’s safety and future lie in its good relations with the CPC top brass.

Nevertheless, the problem is, Tencent may sometimes find itself caught in a dilemma when kissing up to Beijing leaders and making profits become mutually exclusive.

For instance, the “Clap for Xi Jinping” game might be able to make party bosses happy, but a propaganda video game like this can hardly generate big profits.

According to Tencent’s 2018 first-quarter financial results, total income stood at 73.53 billion yuan, with the sales of online video games accounting for nearly 40 percent of it.

Tencent will no longer be investors’ favorite if its revenues go down substantially due to tightened government regulation of online video games.

As such, the company is walking a fine line between toeing the party line and maintaining its profits.

This article appeared in the Hong Kong Economic Journal on May 26

Translation by Alan Lee

[Chinese version 中文版]

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Hong Kong Economic Journal contributor

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