Xi replaces Deng’s cat, bad news for Tencent – With insights from The Wall Street Journal

The JSE's most important company isn't even listed on the South African market. But given that Chinese internet giant Tencent determines the share prices of the exchange's heaviest weighted stocks – Naspers and Prosus – what happens to Pony Ma's business is critical for SA investors. And although the latest quarterlies released this morning are OK (see below) the longer term outlook is positively frightening. After decades of super-charged economic growth, China's Communist Party is changing course. Out goes Deng Xioping's famous approach to the economy of "it doesn't matter whether a cat is black or white as long as it catches mice". In comes Xi Jinping's new feline which will be forced to distribute the mice it catches in the name of "common prosperity". The implications for Tencent – and thus Naspers and Prosus – could hardly be more ominous. Our partners at The Wall Street Journal this morning published an excellent explainer on the communist party's return to its core policy – click here. Chinese capitalists led by Tencent have jumped into line, as you'll read in the piece on Tencent's results republished below, and an article headlined Rift Forms on Didi's Board Following Beijing's Regulatory Assault. – Alec Hogg.Use Spotify? Access BizNews podcasts here..Use Apple Podcasts? Access BizNews podcasts here..___STEADY_PAYWALL___.Tencent to work with Chinese regulators to limit minors' online game time.Tech giant reports slowing revenue growth as Beijing tightens regulations on sector.By Keith Zhai of The Wall Street Journal.Aug. 18, 2021 12:51 pm ET.Tencent Holdings Ltd. TCEHY 3.72% pledged to work with Chinese regulators and industry counterparts to manage how minors use online games and said its April-to-June electronic-game revenue rose at its slowest pace since 2019 amid China's intensifying scrutiny of the tech sector..Tencent President Martin Lau said that regulators are focused on limiting the amount of time and money that minors devote to online games across all platforms and that the company has been proactively addressing the issue. Tencent, a dominant player in China's mobile game market, stands to benefit from such potential rules because consumers are likely to flock to its games with the limited amount of time they have.."If we can actually find a way to regulate the total amount of time that is spent across different games, that would address the problem," Mr. Lau said in a conference call Wednesday. "From the practicality perspective, it is actually doable."China's largest tech corporations have faced months of tightening government regulations that have ignited a trillion-dollar selloff in Chinese equities and curtailed other sectors including online education, ride hailing and e-commerce. Earlier this month, Tencent's major rival, Alibaba Group Holding Ltd. , reported quarterly revenue that missed estimates for the first time in more than two years. State media this month criticized online games as "opium for the mind," triggering a selloff in Tencent shares amid concerns that the company's popular games could be swept up into a broader regulatory crackdown.Tencent on Wednesday posted a net profit of 42.59 billion yuan, equivalent to $6.57 billion, for the three months ended June, while revenue grew 20% to 138.26 billion yuan owing to higher income from its advertising operations and digital-payment products. Its profit beat analyst estimates, but revenue fell short, according to FactSet.The firm's top-line growth in the past quarter was dragged down by slowing electronic-game revenue, which rose 12% from a year earlier, compared with a 40% jump during the same period last year.Tencent, like many other technology giants, including Alibaba and Facebook Inc., has booked strong profits since the coronavirus pandemic began, as homebound consumers turned to online products and services. But a string of regulatory actions has sent Tencent shares tumbling more than 40% over the past six months.Regulators last month ordered Tencent Music Entertainment Group to relinquish its exclusive licensing deals with label companies and halted a Tencent-led merger of two game-streaming platforms, saying that combining the two companies would hurt competition.As Beijing widens its scrutiny, Tencent has further limited game time and spending limits for China's youth, and it has cracked down on minors misusing adult accounts. The company said minors accounted for a small percentage of its online game revenue, with players under the age of 16 accounting for only 2.6% of its gross game receipts in China during the second quarter."The government wants to foster a long-term, sustainable development of the internet industry," said Mr. Lau. "We should expect, in the near future, more regulations should be coming."The company is being "very cautious" in opening its services to other companies' platforms because of complicated questions, he said, such as different platforms charging different fees from merchants. Those issues need to be discussed and resolved over time, he added. The Wall Street Journal reported last month that Tencent and Alibaba are considering moves to gradually open up their services to one another, marking a big potential shift for China's consumer internet, which has largely split into two camps built around the arch rivals."It's not the most important priority for our mission," said Mr. Lau.Write to Keith Zhai at keith.zhai@wsj.comCopyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8Appeared in the August 19, 2021, print edition as 'Tencent Targets Curbs for Minors.'

Xi replaces Deng’s cat, bad news for Tencent – With insights from The Wall Street Journal

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