Welcome to Foreign Policy’s China Brief.
This week’s highlights: A call to regulate Video games drops stocks, China responds to that Delta variant with a full screen press, and why boy band star Kris Wu |‘s arrest could be suspected by others.
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Are video games in the crosshairs of regulators?
A single article in a Chinese state-owned media company caused Internet giant Tencent’s share price to fall more than 10 percent on Tuesday. The article in Economic Information Daily, a newspaper owned by the state agency Xinhua, called for more regulation of video games, which it labeled “spiritual opium” – a politically powerful term that reflects ideological charges of the past.
In a market made nervous by the ongoing regulatory war against private companies, especially tech companies, the article raised fears that the government would be targeting video games next. Tencent has a significant gaming component in its business. The Economic Information Daily removed and then republished the article, removing the line “spiritual opium”, causing Tencent’s share price to rebound slightly.
China’s tech stocks have seen a massive sell-off in recent months, fueled most recently by crackdowns on the education technology sector. The government is trying to narrow the reach of tech giants, spurred on by the relative openness of figures like Alibaba’s Jack Ma, concerns about data and privacy, and simply because the Chinese Communist Party distrusts any powerful group it doesn’t control.
The Economic Information Daily article would be a relatively small political signal in more stable times – but it made big waves in a troubled market. And even if the signal was inadvertent, video games remain a particularly vulnerable sector. The industry has taken off in China, which is now the largest market for video games in the world. Mobile gaming accounts for around three quarters of the market, and Tencent generates 43 percent of all video game revenues in China.
Tencent is a major owner in the global gaming industry, and even non-Chinese companies have been accused of using the Chinese market for political purposes. In recent years, Chinese video games have become one of the country’s few successful cultural exports: a number of creative games, such as the hit Genshin Impact, attracted many overseas gamers.
But even in China, video games are routinely portrayed as being bad for children’s health. The market, like everyone else, is heavily censored, but the main concern is teen gambling addiction. Summer camps supposedly aimed at overcoming this addiction have spread with reports of abuse. In addition to K-pop and Japanese cartoons, video games have also been blamed for the country’s imaginary masculinity crisis.
Video game companies have responded by introducing age limits and even facial recognition. A 2019 law banned minors from playing games for more than 90 minutes a day or at certain times of the night.
Given the current political sentiment, there is a good chance the video game industry will be dealt a significant blow. New private restrictions on education show the government is willing to sacrifice private corporations for the health and ideological control of children. However, the magnitude of the decline in the education sector may delay or weaken restrictions on video games. The foreign reaction appears to have alarmed the Chinese authorities.
Delta fears are rising in China. The spread of the Delta variant of the coronavirus has seen much of China reintroducing travel restrictions and some restricted bans. Departure and entry from China have been suspended except for urgent cases. An outbreak that began near Nanjing has seen the number of confirmed cases rise to 1,167 – a sizable number in China, which prides itself on being coronavirus free.
Protecting Beijing and the leadership is a priority, especially given the upcoming party concave. The government has stopped travel to and from the capital from areas with outbreaks and has put some restrictions on nightlife and the metro. Delta is a disaster for the domestic travel industry, which is now flat after a recovery in the first half of the year. Domestic traffic usually peaks during Golden Week, the entire holiday week in October, but it is likely that tourism will now essentially close.
But the court press also raises questions about China’s long-term strategy in a world where coronavirus is a chronic – if controlled – problem. The cost of maintaining zero COVID-19 through lockdowns and border closings could outweigh the benefits. 61 percent of the Chinese population is vaccinated, but given the relatively poor effectiveness of current Chinese vaccines, don’t be surprised if China develops and prescribes its own mRNA vaccine.
Xi’s vacation plans. Details on the usual withdrawal of the political leadership in Beidaihe, a seaside resort near Beijing, are even more sparse than usual. The August meeting is usually a hotbed of personal politics and sets the agendas for the upcoming annual Party Conclave. Chinese media did not cover last year’s meeting at all, and it is possible that the delta expansion caused travel concerns this year – or that President Xi Jinping restricted things to a narrower inner circle.
Since the party congress is due next year, important changes in leadership are usually agreed at these meetings. Since Xi broke the norm – according to Deng Xiaoping – of ten-year terms in office at the top, anyone can guess whether the usual replacement cycle will hold up. And with China’s borders closed and the risk of speaking to outsiders greater than ever, predictions are qualified guesswork at best.
Mao badges appear in Tokyo. Minor clashes broke out on Monday after two Chinese sprinters wore Mao Zedong badges, once a mandatory form of loyalty when they received gold medals at the Tokyo Olympics. It is not clear what the athletes wanted to express with the badges, other than perhaps the hope of appealing to a resurgent and nostalgic nationalism. Most of the people in China wore the badges in the early years of the Cultural Revolution, but many were collected and melted down after Mao’s death.
The International Olympic Committee (IOC) bans political appearances by winners, but it is unlikely to take action against China given the sensitivity surrounding the Beijing Winter Olympics next year. (The IOC also has a history of overlooking Chinese violations.) Although Xi cracked down on criticism of the Cultural Revolution and revived aspects of Maoist thought, cult images of personality are still risky.
Kris Wu arrested. Sino-Canadian boy band star Kris Wu’s long, strange career came to a halt on Saturday night when he was arrested in Beijing on rape charges. Wu recently faced online allegations of molesting underage fans and former girlfriends. After Beijing police last week accused his accusers of trying to extort money from him, it appeared like Wu weathered the storm – like many other powerful Chinese men accused of abuse.
Wu’s arrest could herald further crackdown on the entertainment industry. Wu was born in China, but his status as a Canadian citizen has been highlighted by both his state media and his accuser. That should be a tricky point for other stars with foreign passports.
Shutdown of the nuclear reactor. South China’s Taishan nuclear reactor was shut down for maintenance after the French company Framatome, which built it, issued a tip in June. China claimed the initial reports were inaccurate, but Framatomes’ tactic of raising concerns with the United States after being ignored by Chinese regulators now appears to be working – even if it is not publicly recognized.
Chinese nuclear construction slowed after the Fukushima disaster in Japan in 2011, and the government carried out safety checks on all reactors. China continues to hope to quadruple its current nuclear power capacity of 49.6 gigawatts by 2035.
“Buy Chinese.” In a further push of decoupling, China has set new 100 percent domestic sourcing targets for a number of state-owned companies. The most critical sector is medical and testing equipment, once a fast growing market in China for foreign companies that is still largely state controlled. Beijing recently opened up new opportunities for foreign ownership in the private health sector, but US firms are likely to still face obstacles, especially as biodata becomes a more sensitive issue.
New Oriental: $ 3.6 billion in sales (2020)
New Oriental, a huge education company that employs around 70,000 teachers and administrators nationwide, was once considered a prime example of Chinese success in a globalized era. The film American Dreams in China featured a fictional representation of the company’s rise from humble beginnings in 1993, keeping its founders as examples of entrepreneurship and its listing on the New York Stock Exchange as a triumphant moment in China’s resurrection.
As of last week, the Chinese government has rocked New Oriental’s business model, leaving the share price at a low of just over $ 2 – a 90 percent decline from February.
New Oriental’s initial business focused on the English exams required for university study abroad. But it was primarily a school for the urban upper-middle class – not for the elite, who preferred smaller, individual classes. Over time, it expanded to include K-12 training courses which became the primary source of income, online education, international travel, and bookstores.
The crackdown on private education has shaken New Oriental and other companies. All private educational companies for children should change their names to non-profit organizations. The solution for New Oriental could be a return to its adult education programs. But if the number of students traveling abroad drops significantly, even this lifeline can be severed.
Given its resources, the company’s stock price can be undervalued – but if it can’t adjust, the real price can be zero.