People play computer games at an internet cafe in Beijing on Sept. 10, 2021. Chinese officials summoned gaming enterprises including Tencent and NetEase, the two market leaders in China's multi-billion-dollar gaming scene, to discuss further curbs on the industry. (Greg Baker/AFP via Getty Images)
Tencent Holdings and NetEase Inc.—both Chinese mega-tech companies deeply involved in gaming design and distribution—were hit hard over the past year and a half. Arbitrary rule in Beijing, decoupling, and a downturn in tech stocks walloped them, along with other Chinese companies that lost trillions of dollars from market selloffs.
But now, big China tech is back. NetEase is the latest to grab international headlines. It plans to capture more international users with its global investment in design teams in the United States, Canada, Japan, and France.
In 2021, Beijing banned children from gaming more than three hours per week. The Chinese Communist Party (CCP) saw it as a form of “spiritual opium.”
Now, the CCP wants to export that gamer opium—along with its infamous fentanyl—for ingestion in America and our allies. What makes us weaker, they appear to reason, makes the regime in Beijing stronger.
The CCP’s ban on gaming in China, while simultaneously supporting its export abroad, uses both push and pull factors to refocus Chinese gaming companies on export markets. The expansion of China’s gaming exports is a vehicle for CCP influence, as with TikTok and Hollywood, because the content can subtly favor CCP ideology. In the latter two conduits, for example, the regime’s many human rights abuses tend to be elided.
China’s Global Gamer Expansion
“NetEase’s global expansion drive kicked into high gear in 2022,” according to DealStreetAsia. The gaming company is based in Hangzhou and is China’s second-largest after Tencent.
Last year, it launched game design studios in Japan with Nagoshi Studio and GPTrack50, in the United States with Jackalope Games and Jar of Sparks, and in France with Quantic Dream. All were its first design forays in these countries.
The latest studio to fall into China’s orbit is Canada’s Skybox Labs, which has participated in the design of hits such as Minecraft, Halo Infinite, Fallout 76, and Age of Empires. NetEase announced the acquisition of Skybox, which has 250 employees, on Jan. 6.
China’s Tencent Holdings, the world’s biggest gaming company, is also on a global buying spree, with more than a dozen gaming studios now acquired.
People visit Tencent's booth at the World 5G Exhibition in Beijing on Nov. 22, 2019. The Chinese internet giant is complying with Chinese leader Xi Jinping’s edict to redistribute wealth in China. It's the largest holding in BMO’s Chinese ESG-focused ETF. (Jason Lee/Reuters)
National Security Risk
The increasing access of Chinese gaming companies to young gamers globally, including their personal data, is a national security concern, given the CCP’s control of Chinese companies and Beijing’s adversarial attitude toward the United States and democracy.
The global reach of Tencent and NetEase, in both game design and customer base, gives them unprecedented and relatively below-the-radar access to youth and young adult demographics, as well as international information networks.
There have long been privacy concerns about Tencent and NetEase controlling the data of their international users, including personal chat data. Even when users attempt to delete data held by NetEase, they could be denied based on the NetEase privacy policy or its failure to follow its own policies. There’s no way for users to confirm whether or not their data is safe with Chinese companies because the Chinese regime is opaque to all but the CCP’s elite.
With Tencent and NetEase’s design expansion, they'll access international computer programmers and could insert hackers into data systems directly. Backdoors can be built into games that would allow full access to user computers.
To mitigate against this and similar risks, India banned 54 Chinese apps in February 2022, including from NetEase and Tencent.
NetEase’s longstanding partner, Activision Blizzard, parted ways with NetEase in November 2022 due to the failure of the company to share Chinese user data. Beijing knows the power of user data and is likely leaning on NetEase to not share. The same doesn’t apply the other way, as Beijing wants to vacuum up as much as possible.
US Should Intervene
The United States should pass laws against companies such as NetEase and Tencent acquiring U.S. and international game design companies and user data, given that the two Chinese companies are based in an adversary nation. While they may claim to not share data with Beijing, they’re required by law to do so whenever asked by the regime.
The U.S. government has been too soft on Chinese companies, given their weaponization by Beijing against democracies around the world. It’s time to step up and impose the penalty of decoupling on not only TikTok, Huawei, and ZTE, which we’re finally starting to address, but on gaming companies such as Tencent and NetEase as well.
There’s precedent. In 2021, the Committee on Foreign Investment in the United States (CFIUS) investigated Tencent’s $1.3 billion takeover of Sumo Group. Sumo’s subsidiary has developed games such as Sackboy, Hood Outlaws & Legends, Team Sonic Racing, and Crackdown 3.
This is the right approach, but CFIUS must do more than investigate. It should end these investments in technologies that can influence and violate the privacy of the next generation of youth in our democracies.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Anders Corr has a bachelor's/master's in political science from Yale University (2001) and a doctorate in government from Harvard University (2008). He is a principal at Corr Analytics Inc., publisher of the Journal of Political Risk, and has conducted extensive research in North America, Europe, and Asia. His latest books are “The Concentration of Power: Institutionalization, Hierarchy, and Hegemony” (2021) and “Great Powers, Grand Strategies: the New Game in the South China Sea" (2018).
