Tencent boosts global investments as Beijing cracks down on gaming

Tencent Holdings Ltd updates

Tencent has increased its investments in overseas start-ups more than sevenfold this year, accelerating the global expansion of China’s most valuable company as Beijing tightens regulatory scrutiny of tech groups.

The social media, gaming and fintech group struck a record 16 deals in Europe, bringing its total number of international investments to 34 for the first six months of 2021, according to data from Refinitiv. That compared with four overseas deals in the same period in 2020 and three in 2019. 

Tencent’s overseas push came as Chinese regulators have cracked down on many of its core business areas such as gaming. “Stricter regulation and declining growth rates in China have led to more Chinese companies as a whole targeting the overseas market,” said Daniel Ahmad, a gaming analyst at Niko Partners.

Most of Tencent’s deals in Europe were in the gaming sector. The UK unit of Tencent subsidiary Miniclip, a Switzerland-based games website, bought Dutch studio Gamebasics in January. Miniclip also acquired a majority stake in Romanian studio Green Horse Games in February for an undisclosed amount.

Tencent also participated in a number of funding rounds for start-ups spanning Singapore, India, Japan, South Korea and Australia as it expanded its international business in the first half. 

“Tencent’s international gaming revenue is growing faster than their domestic revenue and now contributes 25 per cent of online games revenue. I think we are likely to see more investment in this area going forward,” said Wium Malan, a Propitious Research analyst who publishes on the Smartkarma platform.

Many of Tencent’s European deals in countries including the UK, Germany, the Netherlands and Romania were made via subsidiaries. Analysts said this was potentially to avoid public scrutiny. 

Tencent boosts global investments as Beijing cracks down on gaming

Tencent’s negotiations to buy German game developer Crytek via a subsidiary this summer were the subject of news reports about potential security concerns. Crytek did not respond to a request for comment.

Some Asian deals were also made via a subsidiary. Tencent’s Hong Kong affiliate Image Frame Investment acquired a 3.7 per cent stake in Japanese ecommerce company Rakuten in March. Officials in Tokyo later said they were monitoring the national security implications of the deal, Japanese media reported.

“Concerns about Chinese technology have been drummed up very effectively” in markets including the US, Europe and Australia, said Mark Natkin, founder of Marbridge Consulting, a Beijing-based tech research group. “Making acquisitions through a more layered approach that attracts less attention is probably prudent.”

The Chinese tech group often picks local entrepreneurs or executives to lead the overseas businesses it invests in. It already owns Finland-based Supercell, creator of the popular Clash of Clans.

“Tencent invests in a ‘silent’ manner, meaning that they do not rebrand their portfolio companies and generally leave those companies to continue the excellence that made them attractive to Tencent in the first place,” said Ahmad.

Tencent’s Hong Kong-listed shares were hit at the start of the week after Chinese state media unveiled new rules under which children would be allowed to play online video games for only three hours a week.

Martin Lau, Tencent’s president, had warned investors last month that he expected regulatory pressure on tech companies in China to intensify. Tencent had already introduced restrictions on how long minors could play its online games after state media labelled gaming “spiritual opium”.

“The tighter regulatory environment in China could be another push factor” for Tencent’s international dealmaking, said Kelvin Ho, a director at Fitch Ratings.

But 56 of Tencent’s 77 investments or acquisitions in gaming up to August 20 were in Chinese companies, according to Niko Partners data.

Tencent has emphasised its contributions to Chinese society as the regulatory pressure escalated, saying last month that it had set aside Rmb50bn ($7.7bn) for a “common prosperity programme”. It has also deployed facial recognition to police young people playing online games for long hours. 

Tencent declined to comment on its overseas dealmaking.

#techAsia weekly newsletter

Your crucial guide to the billions being made and lost in the world of Asia Tech. A curated menu of exclusive news, crisp analysis, smart data and the latest tech buzz from the FT and Nikkei

Sign up here with one click