China game giant Tencent buys stake in CJ Games

Tencent, China’s largest Internet game company, is looking to become a bigger player in the Korean market after acquiring a 28 percent stake in CJ Games, a subsidiary of CJ E&M.

The Korean company said Wednesday that the 530 billion won ($494 million) investment makes Tencent the third-largest shareholder of CJ Games. Tencent is expected to exert significant influence, especially as Netmarble, CJ E&M’s game business division, is poised to merge with CJ Games.

Tencent has dominated China’s mobile game industry with its WeChat Game Center, a version of Kakao Game Center, opened after Tencent acquired 14 percent of Kakao’s shares to become its second-largest shareholder.

The Chinese company also invested 4 billion won in NSE Entertainment, 5.5 billion won in Reloaded Studios, 1.5 billion won in Red Duck and 2.02 billion won in Toppig.

Earlier, China’s Shanda Games acquired 40 percent of Korean game company Actoz Soft for 55.8 billion won, with the company eventually becoming a 100 percent owned subsidiary of Shanda.

The local IT industry has expressed concern over the increasing influence of China’s large game companies, which have grown with the help of Chinese government support.

“As the online and mobile entertainment lineup of CJ Games provided through Kakao Game Center has been popular in the domestic market, Tencent will likely become the tycoon embracing the entire Korean and Chinese game industry through this investment,” said a market analyst.

Recently, Chinese e-commerce company Alibaba, which announced it would enter the mobile game business, sought an alliance with a midsize game company, too.

On the other hand, analysts of the Korean stock market also forecast that the equity participation of Tencent in listed game and mobile companies will boost share prices.

“Capital flows and global collaboration could serve as a positive factor in increasing the market as Korean companies also attempt to enter the Chinese market through strategic alliance with Chinese companies,” said a local securities company analyst.

“However, we need to consider the side effects of Korean companies’ weakening competitiveness through the ideas and technology spill, as well as the sudden outflow of capital.”

China’s investment is rapidly expanding. According to the Financial Supervisory Service, Chinese investors held 8.29 trillion won worth of Korean stocks and 12.07 trillion won in bonds at the end of February. The amount has increased significantly from 4.03 trillion won of shares and 10.23 trillion won in bonds held by Chinese investors at the end of 2011.

Meanwhile, the CJ Games CEO said Chinese investment will mean a positive outcome for the company in the Chinese market, with its flagship mobile games on Tencent’s platform used by hundreds of millions of people.

“We have been preparing for a foothold to enter the global market by establishing overseas subsidiaries in major global hubs since 2012. Through this partnership with Tencent, we aim to emerge as a global online game company,” said a spokesperson for CJ Games.

BY KIM JUNG-YOON [kjy@joongang.co.kr]