HONG KONG • Beijing has condemned it as "poisonous". The People's Liberation Army weighed in to say it was sapping the might of the Chinese military. Parents added to the chorus of criticism when a 17-year-old boy had a stroke after playing the game non-stop for 40 hours. Honour Of Kings is not just the world's highest-grossing mobile game, with 200 million registered users in China alone, but it is also the subject of intense scrutiny.

Tencent, the maker of the fantasy role-playing game, responded by curbing the hours children could play - one hour a day for the under-12s and a two-hour maximum for those aged between 12 and 18 - after what appeared to be a coordinated attack by the authorities in July. About US$15 billion (S$20 billion) was lost off its market capitalisation. As for the children, many fired up fake IDs or borrowed those of their parents to get round the restrictions and feed their addiction.

But the move was more than a simple slap on the wrist for Tencent. It put the country's tech giants on notice that their mostly unchecked ride to the top - Tencent and Alibaba rank alongside Facebook and Amazon in the world's top 10 most valuable companies - can no longer count on a clear pass from Beijing. The tech groups have avoided heavier regulatory intervention in the past by adopting self-censorship and developing ties with the government. Regulators have typically acted only in response to a public backlash.

But since the Honour Of Kings furore, there have been further warning signs for the industry.

News and celebrity gossip sites have been closed down. Alibaba's Taobao e-commerce platform was rapped for selling banned tokens for virtual private networks. Mobile payment systems were ordered to route their back-end transactions through a central clearing platform, bringing them back into the world of conventional banking, which they have effectively disrupted.

Mr Matthew Brennan of China Channel, a consultancy, who has followed Tencent since it listed in 2004, is among those who believe it and Alibaba have become too powerful. "Industry people, and I'm sure the government, are well aware of that as well," he says. "They are really starting to dominate more and more of the economy."

Alibaba reported a near-doubling in net income to just over US$2 billion in the three months to the end of June, beating analysts' expectations as the boom in Chinese online shopping continues.

Tencent saw revenues surge 59 per cent year on year to 56.61 billion yuan (S$11.5 billion) over the same period.

The criticism is that the tech groups are becoming as powerful, and important to the economy as the state-owned enterprises (SOEs) they are trampling over. This, at a time when the climate in the country has changed markedly, with President Xi Jinping's campaign to purge corruption and reduce systemic financial risk and, in the process, consolidate enough power to control his own succession.

It is all but impossible, even for a visitor, to get through a day in China without recourse to an Alibaba or Tencent app. Communication is virtually all done through Tencent's WeChat messaging service and shop signs demanding payment by app are common. For local Chinese, usage is even higher. Half of WeChat's users spend 90 minutes a day, according to the company, on its services from social media to payments, news, music and games. For Tencent, games such as Honour Of Kings keep people online longer and, in theory, spending more. Similarly, Alibaba has branched out from its e-commerce roots to live-streaming, social media and, through affiliate Ant Financial, a suite of financial products, including wealth management.

This has given the government a dilemma. On the one hand, the rise of the private-sector tech giants dovetails with moves to repurpose the economy towards consumption and cutting-edge technology. On the other, it is by definition disruptive, threatening tens of thousands of jobs and widening the gap with lumbering SOEs.

"Tech is seen as a useful tool to rebalance the economy," says Mr Duncan Clark, author of Alibaba: The House That Jack Ma Built. "There is a constant tension between trying to reform the SOEs and dependency on them."

The warning to the tech giants comes in parallel with steps to inject fresh impetus into the SOEs, say analysts. After almost a year of negotiations with the government, tech companies have agreed to pump US$12 billion into China Unicom, a state-owned fixed-line telecoms operator that has languished in a market where the private sector has leapt ahead in the digital era. The funding is part of the government's efforts to build what it calls "mixed ownership", a euphemism for partial privatisation, in the sector. The Unicom deal is the biggest of its kind in the past decade, albeit one still seen by experts as unlikely to do much to boost returns at the telecoms group.

One participant described the roster of investors as a "Who's who of the Internet space" in China,adding that the government's aim is very clear - to help the SOEs "step into the new digital age".

Having stumped up the cash, however, the companies are quick to dispel any idea that they were press-ganged into national service, pointing instead to the potential gains: joint ventures, better bandwidth for their own services and access to Unicom customers for cross-selling.

However, one of those involved describes it more as an offer the companies could not refuse.

"You cannot say 'no', but can you limit how many times you have to say 'yes'?" they ask.

Curbs have been placed on the wildly popular payments and financial services offered by Tencent and Alibaba, limiting the assets their money market funds can invest in and routing clearing of payments via the banks. Yu'E Bao, the world's biggest money market fund, which is majority-owned by Ant Financial, has twice this year cut the maximum limit for individual accounts from 1 million yuan to 100,000 yuan under pressure from regulators.

"The government wants leverage, always," says Mr Clark, also the founder of BDA, a tech consultancy. "That's how China works. The government has the ability to allow or deny access to capital markets, domestic and overseas, and to opportunities."

Alibaba and Tencent's foreign peers, which have long chafed against Chinese regulators, are unlikely to have much sympathy - Facebook, Twitter and Google are all blocked in the country.

"You cannot assume Chinese companies are above the law," says a mergers and acquisitions lawyer in the country. "In the past, there might have been more optimism that they would be. But look at gaming (and the case of Honour Of Kings). I think everyone is going to be susceptible to central government policies."

Beijing's closer scrutiny of its home-grown companies reflects a shift in priorities. Concerns about the economy and capital outflows - foreign exchange reserves fell by US$1 trillion between June 2014 and January this year - inform the new rules on payment systems. Even the crackdown on Honour Of Kings can be seen in the same vein as curbs on acquisitions in areas such as film and football.

China, argues Mr Kai-Fu Lee, who previously managed Google's China operations and now runs the venture capital firm Sinovation Ventures, is "the most progressive and liberal in the world" when it comes to deployment of technology. But the fast rise of China's online payment sector means that, unlike the United States, Beijing has lost the ability to easily track cash, creating fears over tax evasion and money laundering. "I think it is understandable the time has come," he says. "Because if you want to track money laundering and tax evasion, it's almost untraceable (via these payment systems)."

The clampdown marks the confluence of several Beijing priorities: control over the economy, reform of the state-owned enterprises crucial to the job market and party politics.

Next month's congress will mark the start of Mr Xi's second five-year term as Communist Party general secretary. In a move seen as consolidating his power, Mr Xi is now clamping down on online content, cleaning up everything from porn to gossip to dissenting voices, as well as shuttering dozens of streaming companies.

"They have always had censorship rights," says one tech lawyer. "Now, we are heading towards an Internet completely controlled and monitored by the government."

Tencent and fellow tech companies Baidu and Sina Weibo have been under investigation by regulators since last month for allowing the spread of material that "harms the social order". They allowed posts that were "violent, terrorist, false, rumour-spreading, obscene and pornographic", according to the Cyberspace Administration of China. All three companies "deeply apologised" after the probe was announced.

Some believe this is the same net that caught Honour Of Kings but, as in other countries, others believe gaming is a bigger social issue. "The government is populist," says Mr Brennan, "and needs to be seen to be doing something about things that affect people."

Another industry player adds: "This is the government being worried on the part of parents because a lot of them are parents, too."

This paternalism seems to extend to the SOEs. The arrival of Alipay and Weixin Pay, the mobile payment systems run by Alibaba and Tencent respectively, means far less cash is flowing through state-owned banks such as Bank of China, Agricultural Bank of China and China Construction Bank.

The tech companies, says one lawyer, operate as "de facto banks", receiving people's salaries and paying their outgoings. "China will restrict what it can," he says. "It is really worried about the economy, and no one has accurate data about what is going on ."

Alipay and WeixinPay, says Mr Brennan, are good for the economy and put China at the cutting edge of mobile payments, a US$8.8 trillion market, which is more than 50 times the size of that in the US, according to data consultancies.

But at the same time "they are undercutting the SOE banking sector and have done so very rapidly, and that could lead to instability".

"Too much disruption going on could spill over into unrest. So maybe they need to clip their wings a little," says Mr Brennan.

In response, the tech companies are working directly on projects with the government. Baidu has linked up with the National Development and Reform Commission to build a national deep-learning lab. The company's focus on artificial intelligence sits well with the government's latest drive to lead the world in the sector by 2030.

At home, Alibaba is taking its e-commerce platform, the Taobao village initiative, to less mainstream parts of China and combining it with mini-shops, where people can go in to use the Internet and pick up orders, an initiative that neatly aligns with the government's poverty-reduction drive.

Overseas, these companies have become the face of modern China. Alibaba's founder Jack Ma has taken on the mantle of the country's soft power ambassador, meeting heads of state - he met Mr Donald Trump a month before the US President spoke to Mr Xi - and pledging a mix of jobs (one million in the US) and cash (a US$10 million young entrepreneurs' fund in Africa).

"That's very useful. It's a showcase for China," says Mr Clark. "The risk for him is that people would rather meet him than Xi Jinping."

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