Tencent: Ma is less as Beijing tightens grip

For Chinese tech companies, an antitrust investigation is a sure sign that their business models are working a little too well. Tencent, the latest target of official scrutiny, posted a 175 per cent leap in fourth-quarter profits on Wednesday, beating expectations.

Profits at the Chinese gaming and social media giant rose to $9.1bn. Sales jumped more than a quarter, as online games benefited from lockdowns. Revenues at its fintech business increased 29 per cent.

Meanwhile, founder Pony Ma has reportedly been meeting with trust busters. Such news is ominous at a time when China is intent on cutting its tech giants down to size.

Tencent has survived previous curbs on gaming licences and antitrust investigations into its music unit’s deals with record labels. This time is different. A multipronged regulatory attack against the company leaves it little room to manoeuvre. Regulators are scrutinising Tencent’s core businesses. These include social media, financial services and investments in tech start-ups.

Watchdogs slapped Tencent with a fine for issues over investment approvals last week. A planned merger of its game-streaming companies has been put on hold.

Tencent’s fintech business looks particularly vulnerable in the wake of Beijing’s attack on Ant, Alibaba’s payments arm. Analysts have valued the unit at $120bn. It became a core business, receiving hefty investment after regulators paused approvals for new game licence approvals.

Gaming now looks like a risky source of revenue for Tencent. Game streaming is unlikely to move into the mainstream in the way the payments unit has. A cloud business is unlikely to come to the rescue — it makes losses, operating in a crowded market dominated by Alibaba and Huawei.

Pony Ma has avoided publicly offending officials, unlike namesake Jack Ma at Alibaba. But antitrust probes are unavoidable. Tencent has about 40 per cent of the market for electronic consumer payments through its WeChat Pay and QQ Wallet platforms and about a two-thirds share of the local game distribution market. The Hong Kong-listed shares have started reflecting the outlook, down 19 per cent from a January high.

Chinese tech giants are suffering a melancholy fate. A crackdown is under way even as years of heavy investment begin bearing fruit. Time for investors to switch to smaller groups challenging these incumbents.

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