Internet giant in the crosshairs: “Opium” comparison fuels share price fall in China

Internet giant in the crosshairs
“Opium” comparison fuels price slump in China

From Max Borowski

Now the online group Tencent has been hit. After Chinese authorities tightened the reins for numerous industries, a critical newspaper comment was enough to cause Tencent’s shares to crash.

This time, a critical article is enough to put share prices in China and around the world on the slide again: In a comment a business newspaper belonging to the state news agency Xinhua compares an online game of the Internet company Tencent with “opium for the mind” – and that Shareholders panic. The fear that the media criticism could be followed by measures by the authorities causes the stock to collapse almost eleven percent at times, which means that Tencent loses almost $ 60 billion in value. Ultimately, even after Tencent’s announcement that it would make changes to its box-office hit “Honor of Kings”, the paper slipped almost seven percent and also dragged rivals such as Netease and GMGE Technology down with it. The unrest surrounding the video game business in China also resulted in sales in Europe. So lost the shares of Evolution, Ubisoft and Embracer as well as the Tencent investor Prosus.

The criticism in the state newspaper is fueling fears that the government could now also tighten the thumbscrews in the online video games sector. Drastic interventions in other industries in the past few months make this fear seem very real. The word “opium” is biased in China and evokes highly emotional memories of the opium wars between Great Britain and the Qing Empire in the 19th century.

The focus of the later deleted report was Expressed concerns that minors may become addicted to online gaming. Some played up to eight hours a day. “No industry, no sport should develop in a direction that destroys a generation,” it said. Tencent responded immediately and stated that it would take measures to regulate the access and play time of minors.

Tencent Holdings 48,10

The Chinese authorities have been taking action against private technology companies for months with new rules and measures that have not been seen in years. In autumn 2020, for example, the financial supervisory authority initially let the planned record IPO of the financial services provider Ant and the founder of its parent company Alibaba, Jack Ma, burst at the last moment. Ma, at times one of the most powerful men in the Chinese economy, has since apparently been disempowered, disappeared from the public eye and is said to be concentrating entirely on his hobbies.

From innovation driver to stability risk

In the months that followed, the authorities tightened the reins on Chinese financial service providers and, ultimately, other technology groups. Data protection was cited times, for example to delete the app of the transport operator Didi from the app stores. Another time usury charges from private schools to regulate the booming education sector. The measures triggered tremors on the stock exchanges. More than a trillion US dollars was destroyed by the price losses of the companies, some of which were listed on American stock exchanges. Other well-known companies such as the Tiktok parent company Bytedance put planned IPOs on hold.

China’s leadership had long seen internet companies like Alibaba and Tencent as drivers of innovation and as symbols of China’s growing economic potential. But now other considerations come to the fore. The industry is seen more as a security risk and a cause of social problems. This is of immense importance in the People’s Republic. Because political and social stability has the highest priority for the Communist Party.