China is pouring billions into the European video game industry, but analysts have warned there could be trouble down the road unless regulators start paying more attention.
Europe is involved in longstanding disputes with Beijing over trade, the environment, education, raw materials, intellectual property, but so far video games are not part of the fight.
As Beijing tightens the video game industry at home, China’s tech giants are looking to make investments abroad, raising concerns ranging from data security to the limits of creative freedom.
“Europe has the idea that we will be able to separate strategic industries from non-strategic industries,” Antonia Hmaidi, of the Mercator Institute think tank, told AFP.
“Video games for most politicians will always go in the non-strategic pile.”
This has helped Tencent, the world’s largest games company by revenue, buy studios across Europe, including the world-record $8.6 billion deal for Finnish firm Supercell in 2016.
Chinese rival NetEase made its biggest foray into foreign game studios in August, poaching French firm Quantic Dream, just days before Tencent increased its stake in Ubisoft, another French studio.
EU regulators are only looking for major investments with a pan-European dimension, and national regulators have shown no interest.
When Tencent bought UK studio Sumo for $1.3 billion last year, the deal was not scrutinized by UK regulators but by their US counterparts.
Chinese companies are increasingly seeking profits abroad, analysts say, due to stifling restrictions in their home market.
Tencent posted its first quarterly loss in August due to a broad crackdown in the tech sector.
The Chinese government has identified video games as a potential threat not only to state power but also to the well-being of citizens.
Beijing introduced a nine-month ban on approving new video games last year and now approves only a fraction of the number it once allowed on the market.
Game makers have had to remove “politically harmful” content, and the state has strictly restricted the time young people can spend playing games.
“Chinese companies in general are looking further afield given the domestic market climate,” said Ampere analyst Louise Shorthouse.
Various reports have suggested that Tencent is preparing to increase its investments abroad and could even start taking control of smaller companies.
Tencent essentially “has a lot of cash,” said Kevin Shimota, the company’s former marketing manager and author of “The First Superapp.”
“The Chinese market is cold right now, so in terms of Tencent’s global strategy, you would expect it to be more aggressive,” he said.
But he stressed that the goal was unlikely to be direct acquisitions or deeper control of foreign companies, rather that Tencent could look for ways to develop games for audiences outside of China.
Tencent is ubiquitous in China, an empire of gaming, social media and payment services channeled largely through its WeChat app, which boasts more than a billion monthly users.
Their leader, Pony Ma, has worked hard to stay out of the limelight and out of Beijing’s line of fire.
And the company is determined to present a humble face to the world.
“Whether we are a minority investor or a majority shareholder, we do not exercise creative, editorial, managerial or day-to-day control,” Tencent told AFP in a statement.
Tencent’s business model has generally been to buy foreign companies and publish their games for the Chinese market.
Since it was unlikely that these foreign companies would find another way to enter China, they welcomed the investment and new sources of income.
NetEase follows the same model.
A Quantic Dream blog announcing the acquisition noted that the French firm would retain control over “the editorial line, the artistic direction of our projects, and the management of the studio.”
NetEase did not respond to AFP’s request for comment.
Analyst Hmaidi said the hands-off approach was fine when business was booming, but the effects of an economic downturn or political upheaval were impossible to predict.
European regulators, he suggested, could benefit from a broader approach that questions whether a single country, China or any other nation, should be allowed to dominate an entire industry.
“Having a sector dependent on China in general is bad at the moment,” he said.