Sections
Gi Live London graphic

Connect with the UK Video Games Industry

Buy Your Tickets Today
Gi Live London graphic

“Spiritual Opium”: China's stroke-of-pen risks continue to grow | Opinion

A blink-and-you'll-miss-it incident highlights the authorities' increasingly negative attitude to games and tech - and should trouble investors or companies over-exposed to this market

While the gaming world was distracted by the spectacle of Activision Blizzard's executives trying to display a shred of humanity this week (verdict: a moderately less convincing human act than Vincent D'Onofrio's character in Men in Black), something very odd happened in China.

One of the country's various state-controlled media outlets ran an article bashing video games, spurring a brief market panic that instantly knocked almost 11% off the market cap of Tencent at the open on Tuesday morning. Then the article disappeared (though notably, it remained accessible through the Xinhua state media portal) and Tencent's stock price popped back up, albeit settling at a lower value than before.

A peculiar little storm in a teacup? Perhaps -- but seeing a state media outlet launch a broadside against video games was sufficient to wipe off tens of billions from the valuation of one of the world's biggest companies, and that shouldn't be dismissed as mere "market jitters." Investors were responding to a very real and credible risk -- the "stroke-of-pen" risk for business sectors that fall out of public favour -- which has been heightened and brought to front of mind by the increasingly confrontational mood between China's government and its tech giants.

This represents a much more present and serious threat to the industry than anything ever published in the Western press

Western businesses, executives and investors have become pretty deeply inured to the sort of hysterical coverage seen in this week's article over the past few decades. The piece described games as a "spiritual opium" (the usage of a term with such strong historical connotations in China must have been quite deliberate) in the headline and went on to accuse them of everything from making kids fail school to causing bad eyesight. The rhetoric was very heated (at least through translation -- my Chinese isn't quite there yet), but to Western eyes it seems easy to dismiss. After all, for decades accusing video games of destroying young people's minds in various ways was pretty standard silly-season fodder for newspapers on both sides of the Atlantic, and ultimately nothing of note came of it.

It would be wrong, however, to equate the seriousness of Western independent newspapers running daft stories about video games turning teens into psychopaths, with the seriousness of a state-controlled outlet in China publishing a piece aimed squarely at the industry itself and very notably featuring a call for regulation even in the face of economic costs. This was no space-filler "a concerned parent writes" piece about a soft target -- it made a point of noting the dramatic amount of money the industry makes, arguing that no such financial success could justify "destroying a generation".

There's an important caveat here -- we shouldn't overstate the official nature and function of China's state-controlled media. Not every word is dictated from the government or from people in charge of actual policy-making, and a lot of the time the writers of these pieces are themselves trying to read the tea-leaves to figure out what Beijing wants them to say to some extent.

This specific article appears to have over-reached somewhat -- knocking billions off Tencent's stock price was probably a bit more responsibility than the writer or editors wanted, hence its rapid disappearance -- but it's worth noting that it's far from being out of line with the recent tenor of these types of articles in China's media. This year has seen an extended series of attacks from the government on China's increasingly powerful tech giants, and video games have been in the crosshairs in recent years on multiple occasions: the article may have overreached, for now, but its author by no means entirely misheard the mood music.

Tencent has already made several changes to its flagship game Honor of Kings in the last few years to protect younger players, but the company is one of many still under scrutiny

Tencent has already made several changes to its flagship game Honor of Kings in the last few years to protect younger players, but the company is one of many still under scrutiny

This represents a much more present and serious threat to the industry than anything ever published in the Western press -- which explains why the market panicked upon seeing it. Unlike Western governments, which are generally bound by constitutions and legal systems founded around broadly liberal ideas about freedom of expression, China's government has the power to seriously crack down on this sector in the name of "protecting its youth" or whatever other reason it chooses -- and this kind of article suggests it may be increasingly willing to do so.

This odd incident should be deeply troubling for Western companies who have tied their future growth and fortunes to the Chinese market

The article's call for regulation in spite of economic cost might have overestimated the degree of economic cost the government is willing to bear right now, but it's highly suggestive of a direction of travel -- China's government, like many around the world at present, sees "culture war" topics as potential wedge issues that can shore up domestic support, and the large generational divide in game consumption makes them a soft target for this sort of political strategy.

This odd, rapidly resolved little incident should nonetheless be deeply troubling for the large numbers of Western companies who have tied their future growth and fortunes to the Chinese market and to partnerships with major Chinese firms. It's a reminder that there's a whole category of risk in this market that they're simply not used to dealing with to the same extent in other territories.

The kind of "stroke-of-pen" risks that companies can see coming from years away in other places (giving time for lobbying to kill or water down regulatory proposals, or for adaptation to work within and around them) can really happen overnight in China -- and while the government there may have some qualms about harming Tencent (though not as many as some may imagine), nobody in Beijing will lose a wink of sleep over an action that destroys the market, consumer base, IP or share price of a Western company.

Game and tech companies that entered China in the past couple of decades generally expected advancing normalisation, and entered the market early assuming things would get better. Some of them even remain optimistic about that today -- but the reality is that the "stroke-of-pen" risk in China is higher now than it's been for many years, with the government increasingly bellicose in its dealings on many different fronts, both domestic and international.

Some of that is a lingering symptom of the aggressive trade posturing between China and the US during the Trump administration, and might be expected to slowly simmer down under Biden; but much of it is not, and this kind of aggressive stance on internal cultural issues represents a threat which is grossly underestimated by many Western executives hypnotized by the Yuan signs in their eyes.

None of this is an argument for staying out of China entirely, or for ignoring the extraordinary market growth and diversification that's still happening there -- but it's impossible to ignore that the degree of risk in that market is higher than in other markets, and only growing worse. A state-backed publication calling the industry's products "spiritual opium" should be (ironically) a pretty sobering dose of reality for anyone with rosy ideas about the risk profile of doing business there -- and a wake-up call for any business or investor whose bets are heavily reliant on the normalization of China's business climate and continued availability of its markets to Western companies.

Gi Live London graphic

Connect with the UK Video Games Industry

Buy Your Tickets Today
Gi Live London graphic

More stories

StreamElements raises $100m in investment round

Streaming tools company to expand services for content creators on video-on-demand and livestreaming platforms

By Jeffrey Rousseau

Minority Media becomes Meta4 Interactive

Papo & Yo dev rebrands as it focuses on VR development, metaverse content creation, and location-based entertainment

By Jeffrey Rousseau

Latest comments (1)

Alfonso Sexto Pereyra Quality Assurance Manager, DACS Laboratories GmbHA month ago
Reading "spiritual opium" and "Destroying a generation" from a piece of media controlled by a totalitarian regime would be amusingly ironic if it weren't actually tragic.
0Sign inorRegisterto rate and reply

Sign in to contribute

Need an account? Register now.