Tencent exposes tech's regulatory blind spots

Young people play the game "Honour of Kings" by Tencent, during an event inside a shopping mall in Handan, Hebei
Young boys play the game "Honour of Kings" by Tencent, during an event inside a shopping mall in Handan, Hebei province, China August 5, 2018. Picture taken August 5, 2018. REUTERS/Stringer

HONG KONG, March 24 (Reuters Breakingviews) - Investors hoping for more clarity on China tech’s big transition read more will be disappointed. Tencent (0700.HK) executives talked up a "new paradigm" for local companies: a Beijing-led shift away from reckless expansion and zero-sum competition to more sustainable growth and efficiency. But even after reporting a worse-than-expected 25% year-on-year plunge in adjusted quarterly earnings, it's clear that the full extent of financial damage from new rules and policies have yet to come to light.

Take Tencent's core video-games business, where rules introduced last year restricted how much time and money kids can spend on the pastime. Those under 16 make up a tiny percentage of total player spend, but the company was nonetheless hit by "indirect effects" of shifting resources away from developing new games towards enforcement. Likewise, Tencent's once fast-growing advertising unit, which saw a rare drop in quarterly sales, has been hurt directly and indirectly by not only new regulations on the advertising industry itself, but also crackdowns in sectors like education and insurance as well as new personal data laws. With new rules being rolled out thick and fast, the blind spots are adding up. (By Robyn Mak)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by Una Galani and Thomas Shum

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