Date
18 August 2018
If Google re-enters the China market, it could prompt other foreign online platforms to make some compromises of their own and try to gain entry into the huge market. Photo: Reuters
If Google re-enters the China market, it could prompt other foreign online platforms to make some compromises of their own and try to gain entry into the huge market. Photo: Reuters

Google’s reported China re-entry plan is bad news for Tencent

Tencent Holdings (00700.HK) used to be the top performer in the Hong Kong equity market.

But these days, it has turned into a loss leader.

Tencent’s share price hit a record high about six months ago as it topped HK$470. At that time, it was widely expected that it was just a matter of time before it would sail past the HK$500 mark.

However, the counter has been mostly on a losing streak since then. On Thursday, it closed at HK$345, representing a slide of more than 25 percent from its peak.

Tencent’s weakness is believed to be largely due to three factors.

First, the escalating US-China trade war has been putting severe pressure on the stock market as a whole, and Tencent suffered as a result.

Second, there are worries that the Chinese firm may report that its quarter-to-quarter revenue growth may have slowed to a single-digit pace as gaming revenue seems to have run out of steam.

Tencent is scheduled to announce its second-quarter report on August 15.

Third, US internet giants such as Facebook and Twitter have seen sharp selloffs recently on signs of user growth slowing down. Tencent suffered from a contagion effect.

Apart from all these, there could be one more threat, which might be even more important.

Google reportedly plans to launch a censored version of its search engine in China in order to re-enter the market.

The US tech behemoth is said to have instructed its engineers to design search software that would leave out content blacklisted by the Chinese government. According to media reports, the Chinese search app has already been shown to mainland officials.

The finalized version could be launched in the next six to nine months, subject to approval from Chinese officials, US online publication The Intercept reported this week, citing sources and Google internal documents.

If the report is accurate, it points to two developments.

First, Beijing is willing to open a small door on its China Firewall in order to deliver its promise to further open up the market. Second, Google is caving in to China’s censorship for the sake of enhancing the firm’s business interests.

If Google is entering the China market, it could just be a matter of time for WhatsApp, Facebook and Instagram services to become available in China too.

Competition from these foreign giants could be the biggest threat to Tencent’s dominance in the social media sphere.

This article appeared in the Hong Kong Economic Journal on Aug 3

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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