Tencent Spared Amid China Tech Monopoly Crackdowns

May 10, 2021 Updated: May 11, 2021

Commentary

The Chinese regime fined Alibaba $2.8 billion under its “anti-monopoly law,” highlighting the regime’s comprehensive review of mainland internet companies.

However, Tencent, another monopolistic internet company in mainland China, was only fined $311,610, mere pennies for a mega-corporation like Tencent.

The CCP’s biggest grievance with Alibaba is that it has grabbed a very big slice of the CCP’s precious banking and finance pie. In reality, Tencent’s monopolistic actions are no lesser than Alibaba’s.

China’s three main technology companies are Baidu, Alibaba, and Tencent (BAT). Among BAT, Tencent’s amazing expansion has created the most serious monopoly, which far surpasses the reach of Alibaba or Baidu.

Why is the CCP showing mercy to Tencent while so heavy-handed with Alibaba?

Alibaba Versus Tencent

As megacorps, both Alibaba and Tencent dominate the massive Chinese digital marketplace. Each is valued at similar market capitalizations of approximately half a trillion U.S. dollars, and has slightly differing industry focuses. Alibaba’s main focus is e-commerce, while Tencent leans towards digital gaming and messaging.

Under the umbrella of their massive corporations, they hold a myriad of offshoot companies with overlapping focuses in financial technology, digital payment, wealth management, and messaging platforms.

Financial Sector Holdings

Alibaba’s Ant Financial has sub-business sectors Alipay, Zhaocaibao, Yu’ebao, Ant Jubao, Internet Commercial Banking, Ant Huabei, and Sesame Credit.

Among vertical payment companies, it focuses on public transportation and wealth management. In the entire wealth management industry chain, their corporate structure layout includes investment consultants (Pioneer Pilot), Robo-Advisor (Alfa Financial), and Social Investment (Snowball).

What about Tencent? Its payment platform includes multiple companies: Tenpay, WeChat Pay, Mobile QQ Wallet, and WeChat Hong Kong Wallet. In the wealth management sector, the main product is Tencent Licaitong. Based on the huge user base of WeChat, the number of Licaitong users is increasing that has become a key development target of Tencent’s financial technology.

Tencent’s 2019 financial report shows that Licaitong’s capital holdings exceed $140.26 billion, and Licaitong user fees exceed $31.17 million. In addition, the people’s livelihood service sector includes mobile phone recharge, credit card repayment, Tencent Micro Plus Credit Card, Tencent Blockchain, Tencent Tax Refund, We Remit cross-border remittance, and other services.

Tencent invested in hundreds of companies 19 years ago. In the field of financial technology, it has invested in companies such as WeBank, ZhongAn Insurance, Futu Securities, Water Drop Insurance Mall, and Weibao.

In the field of banking, Tencent Financial invested in China WeBank, an online merchant bank that is far ahead of Ant Financial.

In the BAT 2019 annual reports, WeBank’s revenue shows three times the net profit of Ant Financial.

In addition to banking, Tencent has a strong presence in the insurance field with its joint venture ZhongAn Insurance, as well as heavy investments in Weibao and Waterdrop Insurance Mall. In the securities sector, investing in Futu Securities, the financial report shows that Futu Holdings’ revenue in 2019 was $206.03 million, an increase of 30.9 percent year-on-year from 2018.

The numbers clearly indicate that Tencent’s monopolistic actions in the financial and banking fields are no less than Alibaba and its owner Jack Ma.

Tencent Entertainment and Gaming Monopoly

In addition to financial enterprises, Tencent dominates the Chinese entertainment and media industries. It has the largest market share in terms of stock copyrights, new copyright areas, and IP adaptations.

Tencent covers 53 percent of the 8,826 copyrighted drama series on the internet in mainland China.

Its domination of Chinese entertainment and media is projected to increase in the coming years. Tencent is also starting to sharply increase the production of new dramas in the next two years. In 2020, Tencent’s exclusive hot dramas accounted for 41 percent of the copyrights in the industry. In the next two years, 80 premiere TV dramas are scheduled for release, 37 of them on Tencent platforms.

How did Tencent slowly become the leader of Chinese film and television dramas? Its strategy mainly consists of investing in upstream production companies and locking in production capacity. In the past two years, this strategy has been wildly successful in the field of music production and in the gaming industry.

China Film Investment and Financing Report 2020 shows that Tencent Investment ranked first in the number of equity investments in the film industry. Investment projects include Chinese film production companies like Bona Pictures, Huayi Brothers, Maoyan Entertainment, Weiying Times, and Ningmeng Pictures.

At present, there are 12 leading domestic film and television production companies, of which Tencent’s investment accounts for 42 percent.

In addition to gaining upstream production companies, Tencent, Youku, and iQiyi have invested in the Chinese artist management industry. This platform acquires Chinese celebrity resources through star-making variety shows and buying out the works of Chinese film and television companies, thus binding a large number of Chinese celebrity studios through traffic and monetization.

At present, China’s QQ Music, controlled by Tencent, directly or indirectly controls a large number of music companies. The authorized scale of music production companies, equivalent to 68.7 percent of the global recording industry market share, provides an absolute advantage in copyright competition on domestic music platforms.

Of course, Tencent’s most powerful industry is still gaming. The hottest computer and mobile games in the mainland are basically monopolized by Tencent. Even in the international game market, Tencent has become a world-class player.

Tencent Business Strategies

Tencent’s business strategies are overtly monopolistic and predatory.

Its expansion model emulates western technology companies. It starts by creating a social platform with free services to acquire a massive user base. Next, it monopolizes the relevant upstream and downstream offerings by creating a copy of whatever popular products and services appear in the market and undercutting its competitor’s costs. Tencent is able to price its products for free due to a large cash surplus from its international IPOs in Hong Kong, Shanghai, and New York. It offers a free version of market favorites until the competitor can no longer survive.

This Chinese model of aggressive monopolization is a replica of what happens in Silicon Valley and Wall Street. It’s just that these big internet companies in China are even more aggressive than big U.S. technology companies, have an even larger pool of capital from international IPOs, and operate in China’s closed system.

Why Tencent Was Spared

Despite its overt operational practices as a monopoly corporation, Tencent has been spared from the CCP’s harsh treatment because of its early cooperation with the Chinese regime. Tencent joined forces with the Ministry of Security of the Communist Party of China in the earliest stage of its development.

In 1999, Tencent launched QQ, a prominent social media platform, in mainland China. Its primary functions were instant messaging and social media, which quickly became a popular communication tool.

QQ was the first attempt by the Chinese regime to monitor people on a large scale through internet usage and mobile devices. Tencent’s active cooperation with this endeavor contributed a lot to the CCP’s plan to modernize its methods of monitoring and governing China’s population.

Such cooperation is the key difference between Tencent and Alibaba. Until recently, Alibaba did not fully share corporate data with the authorities, while Tencent shared all data right from the beginning. Now, the CCP is cracking down on Alibaba while taking it easy on Tencent.

Alexander Liao is a columnist and journalist in research on international affairs in the United States, China, and Southeast Asia. He has published a large number of reports, commentaries, and video programs in newspapers and Chinese financial magazines in the United States and Hong Kong. 

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.