The Chinese government's recent efforts to tighten supervision of online gambling and virtual money will not have any real impact on Tencent, according to experts, as the company's games and revenue are unlikely to be affected by the new regulations.

 

"I don't think Tencent's business will be significantly affected by the new regulations, since only a very small part of the company's games and revenue involve online gambling," said Liu Bin, chief analyst at consulting firm BDA China.

 

China's four regulators launched a three-month crackdown on Internet gambling on February 25, aiming to make the cyber environment cleaner and safer.

 

A week later, 14 Chinese regulators including the People's Bank of China released another circular against online gambling and exchanges of virtual money with real currencies and properties, an unusual sign that experts said showed the Chinese government's resolute stance on online gambling and the supervision of virtual money.

 

The release of the new regulations has put China's largest instant message service provider Tencent under the spotlight after reports in the Chinese media that it was involved in online gambling and its QQ coin sparked debate at the end of last year.

 

The reports claimed that Tencent took a 10 percent cut of the stakes from its users of some casual games that allowed them to bet with game coins. And because the game coins could be bought with Tencent's virtual money, QQ coins, using real money, Tencent was criticized for its involvement in online gambling.

 

"There are professional online gamblers who play Tencent games, but I think the percentage is very, very small," said Liu. "And the company's revenue from online gambling was extremely limited."

 

Liu said online games only accounted for about 20 percent of the company's total revenue. Of them, casual games accounted for about 70 percent. And of Tencent's revenue from casual games, about 80 percent was from sales of its virtual items, which gave users advantages in playing the games.

 

Cao Junbo, a senior analyst at research house iResearch, agreed that the impact of the new regulations was limited.

 

"Tencent is likely to adopt alternatives to keep its users, such as rewarding them with virtual items other than game coins or QQ coins," Cao said.

 

"And I think the company would see it as a golden opportunity to explore new revenue sources such as online advertising in its games business, and to get itself out of long-lasting disputes over online gambling and virtual money."

 

Earlier this month, Tencent shut down its service exchanging game coins for QQ coins, closing the door for users who had won the coins in games to convert them into QQ coins.

 

Facing a dilemma

 

Although the Chinese government is firm on its online gambling ban, it seems to be facing a dilemma when it comes to virtual money, a tool that has sustained China's booming Internet value-added service industry and, to some degree, saved thousands of Chinese Internet companies when the bubble burst in 2000.

 

Tencent reported that 66.5 percent of its 737 million yuan of revenue in the third quarter of last year came from Internet value-added services, most of which, according to experts, were purchased with QQ coins.

 

(China Daily March 22, 2007)