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Nov 25, 2021 4 min read

Tencent Forced to Stop Updating Apps in China's Latest BigTech Crackdown

Tencent Forced to Stop Updating Apps in China's Latest BigTech Crackdown

Wiser! Essay: China has looked at the West and said "no thanks, we don't want any of that here"...and so started the Big Tech Crackdown that has resulted in record anti-trust fines, failed IPOs and the safety of users coming before the profits of corporations.

Back Story:  In the latest move in China's crackdown on Big Tech, tech giant Tencent has been suspended from updating its apps or releasing any new ones as part of a so-called “temporary administrative guidance”.

Tencent is, amongst other things, the world's largest video games publisher and has been hit hard by the crackdown on children playing online games.

In August, China barred online gamers under the age of 18 from playing on weekdays and limited their play to just three hours most weekends, a significant toughening of restrictions on the country's massive gaming industry. Gaming companies, including Tencent, were also told by authorities to further clamp down on how minors could play video games and focus less on profits in the process.

Tencent has recently rolled out new measures, including upgrading its screening system to identify and clamp down on adult accounts that may be misused by minors.

Its efforts appear to be working: In September, the first month that Tencent's new measures took effect, users under the age of 18 accounted for just 0.7% of time spent on the company's games in China. That's compared with 6.4% in the same period last year. And whilst the numbers have slowed, they are still impressive. In the last quarter to September 2021, Tencent delivered:

  • $22 billion in revenue, up 13%.
  • $6.3 billion in operating profit, up 7%.
  • $4.9 billion in net income, down 2%.

China's Big Tech Crackdown

The crackdown began in 2020 when the Chinese Communist Party (CCP) scuttled Ant Group’s much-anticipated IPO. Alibaba, which is the world's largest e-commerce firm, was forced to scrap the Ant IPO at the last minute. The floatation was expected to raise $37 billion and value the company at over $300 billion. Alibaba was then hit with a record $2.8 billion fine in April for anti-competitive behaviour in the new wave of anti-trust investigations.

It continued in 2021 with a slew of measures including:

  • Anti-trust fines.
  • Removing DiDi’s apps from China’s app stores.
  • Various restrictions on private tutoring firms.
  • Forced divestitures of media assets.
  • Forced contributions to the Common Prosperity push (President Xi's plans to narrow the wealth gap between the working and middle classes in China).
  • Restrictions on how much time children could spend playing video games (no time on school days and a limited number of hours on the weekends).

It was the latter of these measures that hit Tencent the hardest. Unlike Alibaba, Tencent did not get hit with any fines or forced divestitures. It did however take two big hits:

  • It pledged $7.7 billion to the common prosperity push. Tencent later raised their contribution to $15 billion!
  • It had domestic consumption of its gaming services curtailed by the video game restrictions.

Meanwhile, Alibaba reported profits are down 81% as a result of the Big Tech Crackdown.

Essential Reading

China’s Big Tech Crackdown
Newsletter #26 (Premium): China has looked at the power of the BigTech monopolies in the USA and said “not happening here!”...and they mean business!

TakeAway:  It is this crystal clear emphasis on user welfare and safety over profits that is in stark contrast to the regulatory approach in the US.

The recent testimony from Facebook whistleblower Francis Haugen exposed how Facebook have their priorities the other way around. Meanwhile, the world's largest social media network is taking no steps to change its business model but has created a distraction - "hey, look over there, it's the metaverse".

When it comes to BigTech, China's ruling party have looked at what is happening in the West and said "not in our back yard, thank you" as they watch the harms go unchecked in Western online use. Unlike regulators and law-makers in the West, the CCP has shown no hesitation in clipping the profits of the BigTech giants.

For example, take TikTok (the most addictive of the social media platforms). if you are under the age of 14 and you use the Chinese version of TikTok (called  Douyin), instead of getting an endless stream of vacuous influencer dancing videos, they get fed science experiments, museum exhibits and patriotism videos. This is because China wants its youth to be educated and aspire to be astronauts and scientists and not chase a career on Love Island.

Time on TikTok for children is also limited to 40 minutes a day and restricted entirely between the hours of 10 pm and 6 am. If you're 14 or younger, come 10pm, TikTok is closed to you and, crucially, for all of your friends too. This removes FOMO and allows youngsters to do anything else other than sit on their phones at 1 am in the morning.  

The other measure introduced on TikTok is a mandatory 5-second pause every so often to ask the young user if they'd like to get up and do something else.  In other words, this is a nudge to go do something else instead of mindlessly scrolling through the short-form videos.

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Reuters: What is China's 'common prosperity' drive and why does it matter?

CNN: Tencent is starting to feel the pain of China's 'new normal'

CNN: China fines Alibaba, Tencent and Baidu for more antitrust violations

Bloomberg: Tencent buys Nintendo Game Studio

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