Chinese tech and gaming giant Tencent, known for owning a slice of everything in the gaming industry (opens in new tab), is no longer China's most valuable company, according to a Bloomberg report (opens in new tab). at a five-year low, and late last month its overall market capitalization was overtaken by Kweichow Moutai, a Guizhou-based company specializing in the production of Maotai rice wine. At the time of this writing, Kweichow Moutai led Tencent's market capitalization by $235 million.

Unthinkable last year, when Tencent was the most valuable company in China, trading at $50 to $90 per share, Tencent's fortunes have been sagged by an increasingly hostile domestic environment. A combination of China's high-tech crackdown (open in new tab), strict COVID policies (open in new tab), and generally sluggish economic growth have made business difficult for Tencent and many other Chinese companies. Tencent has erased $650 billion from its market capitalization since the beginning of 2021.

The poor performance has led Tencent to adopt a strategy of downsizing, with a series of layoffs in departments across China to make up for losses (opens in new tab). The cooling Chinese market is also a factor in Tencent's growing presence in the Western gaming market. Tencent is acquiring companies outside of China (opens in new tab) precisely because business is currently tough at home.

This struggle is not going to stop. Tencent received its first gaming license (opens in new tab) from the Chinese government in over a year this September, and COVID isn't going anywhere anytime soon. For the time being, the company expects to continue cutting back domestically and expanding abroad. Meanwhile, Kweichow Moutai will benefit from the government's promised support for the "consumer-driven" sector (opens in new tab). Perhaps Tencent should shift its focus to liquor production.

While this is far from the end of the road for a giant like Tencent, it really illustrates how bleak the current situation is for Chinese tech companies. Nevertheless, Tencent still has its fingers in many pies. Aside from its flagging stock price, Tencent has been in the news lately for signing a deal with Ubisoft (opens in new tab), trying and failing to make a Lord of the Rings MMO with Amazon (opens in new tab), and opening an AI-managed nightmare hotel in Hangzhou (opens in new tab). The company has also made headlines by opening a nightmarish hotel in Hangzhou (opens in new tab). Not bad for what is currently only the second most valuable company in China.