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Washington puts US gaming companies on notice over Tencent ties

Written by Wency Chen Published on 

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Tencent owns Los Angeles-based Riot Games, which is the creator of League of Legends, and holds a 40% stake in Epic Games, maker of Fortnite.

The Committee on Foreign Investment in the US (CFIUS) has sent letters to Tencent-backed companies, including Epic Games, Riot Games, and others, inquiring about their data security protocols involving Tencent, as China-US tensions are set to engulf another industry, according to a recent Bloomberg report.

President Trump’s executive order, with its ambiguous language, sent a shiver through the gaming world as Tencent holds massive investments in American companies. But White House officials clarified that the order is meant to focus only on transactions specifically related to WeChat.

Tencent owns Los Angeles-based Riot Games, which is the creator of League of Legends, and holds a 40% stake in Epic Games, maker of Fortnite. It also has 5% shares in gaming giant Activision Blizzard.

China digest

The executive order was seeking to ban all transactions with Tencent’s messaging app in the US. However, the ban on WeChat is now halted after a federal judge on Sunday issued an injunction, citing concerns that the order would harm First Amendment rights.

“The negative impact on the gaming industry is limited,” said Zheng Jintiao, the founder of Chinese online gaming community GamerBoom. “Most of Tencent’s investments are small equity investments, even in the case it holds a larger stake, the gaming companies and studios remain independent operations. Technically, there shouldn’t be any data security problem.”

Different from apps like TikTok that collects geolocation data, most Epic and Riot games are PC-based, which generally does not enable geolocation tracking and collects less sensitive data, according to a South China Morning Post report that is citing Greg Pilarowski, founder of San Francisco-based law firm Pillar Legal, which specializes in technology and gaming.

Hostile moves

However, the political tensions between the US and China complicate the case. “The trade war between the US and China has been shifting to a ‘tech war’ since the end of 2018,” said Feng Chucheng, political risk analyst and partner at consultancy Plenum. “The setback of Tencent is part of the US’s hostile moves towards Chinese tech companies. The underlying reasons are the disagreements on internet governance models and competition in data and technology.”

On the basis of White House’s 5G Clean Path initiative, which aims to bar Chinese companies from America’s 5G infrastructure, Secretary of State Mike Pompeo announced the “Clean Network” program in a bid to “guard [US] citizens’ privacy” from “malign actors,” signaling the government’s tough stance on internet governance.

As far as investments are concerned, the Foreign Investment Risk Review Modernization Act (FIRRMA), which took effect on February 13, gives CFIUS new bases for jurisdiction, including “non-controlling investments in certain US businesses involved with critical technology, critical infrastructure, or sensitive personal data.”

“There may be a period of time in the future that will be difficult for technology companies to grow on a global scale,” Feng said. “It’s hard to meet the various requirements of different governments.”

Tencent’s smash hit, PUBG Mobile, was taken down in India by the government over security reasons this month, in addition to more than 200 Chinese apps. In response, the South Korean developer of PUBG cut ties with Tencent, discontinued its PUBG franchise, and is seeking new partners in India, where the game was the biggest grossing mobile title last month.

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