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Tencent shares fall as Chinese state media brand online games ‘spiritual opium’


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Shares in Tencent and other Chinese video game companies fell more than 10 per cent after state media lambasted online games as “spiritual opium”, in the latest broadside from Beijing against the country’s tech groups.

The article in the Economic Information Daily newspaper, which is run by state news agency Xinhua, said online video games had grown into “spiritual opium worth hundreds of billions”. One expert warned that “no industry . . . can develop in a way that destroys a generation”.

Tencent shares pared some of those losses to sit about 7 per cent down in afternoon trading after the article was taken off the newspaper’s website.

The volatility came after China’s tech stocks notched their worst month since the global financial crisis in July following an unprecedented regulatory campaign against tech sectors including education, ride-hailing and social media.

The article did not mention Tencent by name but complained of widespread internet addiction among China’s youth. It quoted unnamed students as saying that some of their classmates spent as many as eight hours a day on the internet group’s flagship Honor of Kings game, and warned that this “new type of electronic drug” was “advancing by leaps and bounds”.

The historically charged comparison, likening Chinese video-game makers to the foreign opium peddlers whose trade contributed to the disintegration of imperial China, sent shares in some of the country’s biggest tech groups sharply lower on Tuesday.

Shares in Tencent, whose online games business generated Rmb39.1bn ($6bn) in the first quarter and accounted for 30 per cent of total revenues, fell as much as 10.8 per cent in Hong Kong. Rivals NetEase and XD dropped as much as 15.7 and 21.8 per cent, respectively. China’s video games market was worth $43.1bn in 2020, according to Niko Partners, a research firm and consultancy.

Line chart of HK$ share price showing Tencent shares dive in the face of Beijing’s tech crackdown

The renewed attack by state media on Chinese tech groups weighed on shares in Shanghai and Shenzhen. These had steadied in recent days following a conference call in which China’s securities regulator sought to reassure global and domestic financial groups over Beijing’s relentless crackdown on the sector.

In recent weeks, Beijing has called for a new overseas listings regime, imposed data security reviews on companies seeking to sell shares abroad, and outlawed the country’s $100bn private tutoring industry from making profits. This rendered the sector’s three biggest companies “virtually uninvestable”, according to JPMorgan analysts.

The state media article signalled a new challenge for Tencent, which controls the country’s ubiquitous WeChat social networking and payments app and had until recently come through the regulatory assault relatively unscathed.

That changed abruptly last week, when the company announced it was halting all user registrations for WeChat as it upgraded its security technology to “align with all relevant laws and regulations”. Tencent’s stock has dropped more than a quarter over the past month.

“The timing of the article certainly raises concerns among investors due to the crackdown we’ve seen recently [on Chinese tech],” said Daniel Ahmad, a senior analyst at Niko Partners.

But he added this was not the first time games had been likened to drugs in China. The article’s publication also followed new rules that came into effect on June 1 requiring companies to verify each player’s age and identity to limit how much time minors spent playing.

“This [article] is more of a critical look at how loopholes still exist within the current regulation systems,” Ahmad said.

New Oriental Education, a leading Chinese tutoring company, also cancelled its fiscal fourth-quarter earnings release on Tuesday in the face of crippling regulations for the education industry.

As with almost every Chinese company listed in the US, New Oriental is classified as a foreign private issuer, which provides it with a more lax disclosure regime compared with domestic companies.

These Chinese companies technically do not need to disclose quarterly earnings, and only need to issue annual reports.

Additional reporting by Ryan McMorrow in Beijing



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