This is the first part of a series exploring China’s recent moves against the technology industry. When Communist Party mouthpieces People’s Daily and Xinhua News Agency? published eight articles in one week in 2017 comparing Tencent Holdings’ hit mobile game Honour of Kings to “poisonous drugs”, founder and CEO Pony Ma took action. On July 14, 2017, the gaming and social media tycoon went to Beijing to meet with the editors responsible for wiping out nearly US$17.5 billion (HK$136 billion) from his company’s market value. People’s Daily greeted the billionaire with standard-practice courtesy for a person of his status: a massive LED panel displaying a digital welcome banner. While photos of Ma and the paper’s senior leaders quickly went viral, no information was released about the content of the meeting. At the same time as Ma’s visit, Tencent was busy introducing stringent new rules for child and teenage gamers – at the time calling them “the most serious anti-addiction measures in history”. State media pressure eased and the company eventually went on to capture 40 per cent of China’s gaming market, propelling Tencent‘s stock by another 170 per cent to a record over the next three years and putting a US$1 trillion market capitalisation briefly within sight . “[Tencent] has not only been clever in developing and publishing blockbusters, cultivating an incredibly scaled audience and branching out into different verticals such as esports or streaming,” said Serkan Toto, chief executive of consultancy Kantan Games. “[The company] has also been strategic in complying with local laws and regulations.” And now, as China’s video games industry sees strong growth amid a world locked inside, a new wave of concerns once again puts on display Beijing’s love-hate relationship with the digital pastime as well as Tencent’s ability to navigate an increasingly complex regulatory environment. Tencent answers call for ‘common prosperity’ with US$7.7 billion fund Between Ma’s fateful Beijing meeting in 2017 and this February, not only did Tencent’s market cap nearly triple to US$950 billion, China has also risen to become the world’s biggest video game market in the world. In 2020, China’s domestic gaming revenues rose more than 20 per cent to 278.7 billion yuan (US$43 billion) with almost half of the country now playing video games, according to statistics from government-backed China Audio-Video and Digital Publishing Association. Tencent’s dominating share of the global games market translated to 43 billion yuan in 2021 second-quarter revenue, equivalent to around a third of the company’s total sales. With the support of multiple gaming giants, China has laid out big plans to capitalise on its growing gaming and esports industry. To game is glorious In December 2017, just five months after the state media broadside against Tencent’s gaming business, the company’s flagship subsidiary and the developer of the popular League of Legends , Riot Games, went on to host the world’s top esports tournament in Beijing. More than 40,000 gaming fans from around the world packed into the capital’s National Stadium to watch teams compete, driving mainstream interest in gaming and esports even higher. Last August, Beijing’s municipal government launched the “Esports Beijing 2020” initiative, promising to provide major subsidies to teams, venues and games that promote local culture. A month later, during the Beijing International Game Conference (BIGC) , the city announced its intention to become an “international capital of online games” by 2035. Gamers can win official medals at Asian Games 2022 Not to be outdone, Shanghai announced in June 2021 that its online games market was worth 1.2 trillion yuan as the city strived to become “the world capital of esports”. Increasingly, propaganda officials have gone out of their way to publicly endorse gaming and esports, comparing them to art and literature and emphasising the role of esports as “the ambassador for Chinese culture going global”. When an article this month from state media said Honour of Kings, the world’s first game to average 100 million daily players, was “spiritual opium” , other outlets and state-backed organisations were quick to defend both Tencent and video games. The China Game Publishers Association Publications Committee (GPC) that same day said in an interview that online games were not “fierce floods or savage beasts” and video games can bring benefits to society and are able to “broadcast positive energy”. Before Tencent’s Honour of Kings went viral, it was a desperate experiment On the following day, Securities Times , a state newspaper affiliated with the People’s Daily , published another op-ed praising video games’ importance as a vehicle for China’s global influence . “Gaming might be perceived as the best chance for China to really tackle its soft power issue abroad,” Daniel Camilo, a Shenzhen-based gaming consultant said. “Consider the soft power that Japan managed to spread internationally with its video games and popular IPs. China has a lot more resources than Japan ever had, and already the biggest gaming company in the world.” Protecting the youth At this year’s “ Two Sessions ” in March, President Xi Jinping explicitly listed game addiction as a concern for the psychological health of the country’s teens. The article from state media that called Honour Kings “spiritual opium” was taken as a signal that the sector could be Beijing’s next target, an investor sell-off saw nearly US$100 billion wiped off the value of gaming stocks. Tencent alone lost US$43 billion in a matter of hours and, since its high in February, has lost more than US$400 billion. Once again, the company found itself facing down a regulatory storm that could obliterate its most reliable revenue driver. And just like in 2017, it was ahead of the curve: quickly announcing further limits on players of Honour Kings under the age of 18. “Tencent has been quick to respond to criticism and concerns about its game business, that have been raised by the government, media and parents,” said Daniel Ahmad, senior analyst at Niko Partners. “Tencent was the first games company to roll out an anti-addiction system for minors on mobile in 2017.” However, that does not seem to have been enough as more state-owned outlets continue to pile on. China National Radio (CNR) called for “zero tolerance” for online games that distort history. Pain of China’s Big Tech crackdown a necessary short-term cost: state media Another commentary from People’s Daily took a jab at Tencent, arguing that the “youth modes” deployed by Chinese internet platforms to protect teenagers from gaming addiction and inappropriate short videos do not go far enough. “While the youth modes have apparently accumulated a significant number of users, many problems still persist, with some youth modes being criticised by parents as ‘existing in name only’”, the op-ed said. A public interest lawsuit, brought by the Haidian District People’s Procuratorate, alleges that the youth mode of Tencent’s multipurpose super app WeChat fails to comply with China’s updated minors protection laws. Following the barrage of criticisms aimed at Honour of Kings in 2017, trouble in fact did not fully disappear for Tencent or the gaming industry. As part of a restructuring of regulatory bodies, Beijing virtually halted the approval for all new video game licence applications. Unlike most other countries, game publishers in China have to obtain approval from regulators before releasing their games. Uncertain outlook A large wrinkle in Tencent’s strategy proved deadly for smaller developers. More than 28,000 gaming companies closed their doors in 2018 and 2019, according to a report by state-run television station CCTV. If Beijing does decide to take aggressive action against gaming, the same thing could happen again. “Smaller developers in China’s online games market may be harder hit by tightening regulations on the sector than large, diversified leaders including Tencent and NetEase,” wrote Matthew Kanterman, senior analyst at Bloomberg Intelligence, in a recent note. The comparison between video games and drugs by Chinese state media dates back to 2000 when People’s Daily called video games “digital heroin”. That same year, the Chinese government banned the sale of video game consoles. It wouldn’t be until 2015 that Sony’s PlayStation and Microsoft’s Xbox were allowed an official presence. In 2020, three years after its global launch, the Nintendo Switch finally came to China with the help of Tencent. At launch, it only had three games and Chinese players cannot play with their international peers. Keeping a tight grip on foreign gaming giants and grooming Tencent as the sector champion, with its 4000 international developers , may be part of Beijing’s calculus. It affords authorities better visibility into the industry, forces Tencent to lead the industry by example, and gives China sway over an international cultural behemoth. “Tencent, as the biggest gaming company in the world, and having direct influence and ownership over many studios worldwide, might function as Beijing‘s spear to spread its influence,” said Shenzhen-based consultant Camilo. “Just like Hollywood moulded world views and perceptions all over the planet in favour of an American-centric perspective, it is legitimate to assume that Beijing has similar plans, including through gaming.”