This latest inquiry builds on the White House’s increased scrutiny of Chinese tech firms and their ties to US companies, which has been a source of tension between Washington and Beijing and a pillar of President Donald Trump’s re-election campaign. However, experts doubt the inquiry as it exists now will lead to any immediate changes, saying the case against Tencent as a national security threat remains tenuous.

This is in contrast to recent attacks made against the hit short video app TikTok, from Beijing-based ByteDance, which collects personal information on the millions of users who have the app installed on their phones in the US. Trump has also threatened Tencent‘s WeChat with a ban although specific measures are still being examined by the Commerce Department.

A particular point of concern with TikTok was the collection of geolocation data, which isn’t an issue with most Epic and Riot games. Their games are mostly played on PC, which generally does not enable geolocation tracking.

“I think for [the] CFIUS review to make a national security argument over people playing League of Legends and the data associated with that, and not to look ridiculous, you’ve got to present something credible,” said Greg Pilarowski, founder of San Francisco-based law firm Pillar Legal, which specialises in technology and gaming. “On the PC game front, the collection of user data just didn’t seem as sensitive unless you’ve got Nasa engineers playing League of Legends on their work computer.”

Tencent, Epic and Riot did not immediately respond to inquiries sent by the Post.

While PC games might seem like less of a threat, analysts are not surprised by the investigation. Now that Tencent, via WeChat, is in the Trump administration’s crosshairs, it has become a subject of the president’s re-election campaign.

But Pilarowski said the case against Epic and Riot specifically is a long shot, likely born out of the desire to prop up the administration’s image as tough on China to boost Trump’s poll numbers.

“It’s impossible to view this separate from the November 3 election date,” Pilarowski said.

Other experts see close scrutiny of Tencent’s gaming business as a long-term theme in the US, persisting even beyond this year’s presidential election. Should anything come of it, there’s a lot of money on the line.

In a report last month, Bloomberg Intelligence analysts Matthew Kanterman and Vey-Sern Ling said that if the White House decided to go after Tencent’s gaming assets, Tencent has at least US$22 billion worth of related investments in the US that could be at risk of forced divestment. Riot and Epic accounted for as much as 7 per cent of Tencent‘s game sales and 6 per cent of its 2019 pre-tax profit, they said.

“Clearly the worsening China-US tensions are putting large Chinese tech companies under the gun in the West, and Tencent’s gaming business has a large presence through Riot, Supercell and its multiple investees,” Kanterman told the Post. “It’s just not clear how this shakes out at this point.”

Pilarowski suggested that the expanded scope of reviews under the Foreign Investment Risk Review Modernization Act passed in 2018 gave CFIUS the power to undo Tencent’s investments in the US. But video games specialist attorney Brandon J. Huffman, from Odin Law and Media, said that divestiture for Tencent remains unlikely at this point.

“Because Tencent is invested so broadly throughout the industry, that divestiture would mean a massive reorganisation of ownership throughout the entire sector,” Huffman said.

But Huffman agrees with Pilarowski that Tencent’s gaming companies are not like TikTok, which Huffman says has “some real privacy issues”.

Tencent could also become a target in gaming in other ways. In addition to investing in gaming companies, Tencent develops its own mobile games, some of which are incredibly popular around the world. The company owns PUBG Mobile, currently the most lucrative mobile game in the world, and Arena of Valor, the international version of Honour of Kings.

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“The State Department has released this Clean Networks Project, which suggests that maybe they don’t want any Chinese app in America,” Pilarowski said. “Pompeo is trying to sign up other countries on board with this policy proposal.”

Beijing-based intellectual property attorney Matthew Murphy, from the law firm MMLC Group, said that pleasing the US government might eventually require Tencent to look at setting up local data centers and cloud services.

“Some have said that it looks like CFIUS may be following China’s lead regarding its enforcement of the PRC Cybersecurity Law,” Murphy said. China’s cybersecurity law that came into force in 2017 requires network operators to keep Chinese user data within the country.

Tencent could have more to lose than just the US market, though. Serkan Toto, chief executive of industry consultancy Kantan Games, said the clampdown on Tencent in the US could jeopardise the company’s global gaming ambitions.

“If Tencent was really forced to divest in the US, it would be a big blow, not only to the company‘s financials, but also to its reputation and future overall,” Toto said. “There could also be spillover effects to other territories like Europe [and Japan].”