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Chinese government the crackdown on its domestic tech industry continues, with Tencent under further pressure despite the company’s efforts to keep up with changing regulatory expectations.
News broke over the weekend that Beijing had taken civil action against Tencent “for claiming that the youth mode of its WeChat messaging app did not comply with laws protecting minors,” according to the BBC. And NetEase, a large Chinese tech company, will delay the IPO of its music branch in Hong Kong. Why? Regulation uncertain, according to Reuters.
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The latest wave of bad news for the Chinese tech industry follows a series of regulatory changes and national government actions that have removed a huge amount of value from stocks. After a period of relatively light regulatory oversight, Chinese tech companies found themselves on the defensive after the Chinese Communist Party (CCP) came after their market power in antitrust terms – and some of their business operations from other perspectives. . The most affected sectors are fintech and edtech.
Gambling is also in the crosshairs of the CCP.
After state media criticized the gaming industry for providing the digital equivalent of drugs to young people across the country last week, shares of companies like Tencent and NetEase fell. Tencent owns Riot Games, creator of the famous League of Legends title. NetEase generated $ 2.3 billion in gaming revenue out of total revenue of $ 3.1 billion in its most recent quarter.
NetEase stock was trading at around $ 110 a share at the end of July. It is now worth around $ 90 a share after expectations changed in light of the gaming news, indicating that investors are concerned about its future performance. Hong Kong-listed Tencent stock also fell from HK $ 775.50 to HK $ 461.60 this morning.
Tencent has tried to avoid regulatory pressure, announcing changes in the way it controls access to its games after the government fires through the arc. The effort doesn’t seem to have worked. The fact that Tencent is being sued by the government despite its publicly announced changes implies that the proposed restrictions on games for young people were either insufficient or perhaps moot from the start.
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