Just about a year ago — March 29 of last year — the Wall Street Journal published a fascinating piece called “QQ: China’s New Coin of the Realm?” The story looked at how the wild success of Tencent’s “QQ coin” (known as the Q币, “Q-bi,” in Chinese), which was trading against the RMB and had appreciated by some 70% in the weeks before the story ran, had prompted regulators to crack down on conversion of the QQ coin into real currency. The QQ coin, launched back in 2002, had spread well beyond Tencent’s numerous Internet offerings — IM, community, games, dating and so forth — and was being accepted not only by other non-affiliated online game sites and e-commerce sites, but by operators of gambling and pornography rackets as well. Not surprisingly, it was being used to launder money, too. As the Journal piece had it:

At informal online currency marketplaces, thousands of users helped turn the QQ coins back into cash by selling them at a discount that varies based on the laws of supply and demand. Traders began jumping into the QQ coin market as an opportunity to make a quick yuan off of currency speculation.

State-run media reported that some online shoppers began using QQ coins to buy real-world items such as CDs and makeup. So-called QQ Girls started accepting the coins as payment for intimate private chats online. Gamblers caught wind, too, and started using the currency to get around China’s anti-gambling laws, converting wins in online mahjong and card games back into cash. Dozens of third-party trading posts sprouted up to ease transactions, turning the QQ coin into a kind of parallel currency.

After the People’s Bank of China issued an edict tacitly aimed at Tencent and its coin, the Shenzhen-based company was forced to take action. Among other things, it sued Taobao for selling QQ coins online, and no longer offered coins to top-scoring gamers to keep them playing, as they once did.

Economists had good reason to worry for the impact of the parallel currency, the Journal article went on to say:

The trouble starts when a virtual currency that isn’t backed by a trusted government, becomes linked to a real one that is through an exchange rate. Virtual currency brokers call that RMT, or real-money trade. When that happened to the QQ coin, it effectively turned into a parallel currency operating alongside the yuan, says Yiping Huang, the chief Asia economist of Citibank.

The creation of too many QQ coins, he notes, could, in theory, create a surge in China’s total money supply, leading to inflation. While few think a QQ monetary crisis is likely, assessing the economic impact is difficult because Tencent won’t say how much QQ coin is in circulation.

“If I were a policy maker, I would certainly be very cautious,” says Mr. Huang.

The QQ coin is in the news again. This morning a friend sent me a link to a story on Donews (in Chinese, originally apparently from a publication called “Online International”) that goes into quite a lengthy exploration of the origins of the QQ coin, conceived in part to help ween Tencent off the addiction to wireless revenues it shared with other leading Chinese Internet companies. The story looks at how Tencent partnered with banks to pioneer a debit card-based payment system (debit cards, unlike credit cards, enjoy very high penetration), and how the company exploited game card distribution channels — amassing some 3,655 points registered outlets in Beijing alone where QQ addicts can get their fix, including post offices, news kiosks, software stores, Internet cafes, malls, convenience stores, and so on. There’s quite a bit of fascinating detail on channel costs, the margins of card resellers, and of course the balance that goes into Tencent’s pockets.

But the story purports to reveal some of the darker secrets of how Tencent keeps its users buying QQ coins — especially if the company doesn’t look like it’ll hit its quarterly numbers. (The article’s title, in my rough rendering, is “All Services Are Commodities: Exposing the Extortionate Secrets of the QQ Coin”). As promised, this time around the meat of the story centers on allegations that Tencent is manipulating its virtual currency so as to impact not the RMB, but rather its stock price. (The company is listed on the HKSE, ticker symbol 0700). The story quotes a former product manager for Tencent’s virtual pet offering, QQ Pets, named Gao Shan:

The aforementioned QQ Pets product manager Gao Shan told this reporter that [in quarters where internal indicators looked to be off] he was under tremendous pressure, and he wracked his brain to find a way to raise consumer spending without impacting user experience or running counter to the spirit of the game. Naturally, Tencent gave them the authority to conduct “promotional activities.”

For example, if at the end of a quarter they needed to boost revenue, a QQ Show product manager could offer discount promotions and a QQ Pets manager might, through a line of code, order all pets in a certain geography or in a certain number series to “get sick.” He might even have all pets nationwide “get sick.” When customers take their pets to “see the vet” and purchase medicine, this helps the product manager can fulfill his quarterly mission. “This is an oblique demonstration of the fact that QQ Pet owners are quality customers,” says Gao Shan.

Practices like this, which I suspect are commonplace, aren’t particularly nice though they hardly seem criminal and aren’t even plainly unethical. A more cynical observer might suggest that anyone foolish enough to dump good money into a few lines of code in they’ve somehow invested with a soul, with needs, with personality — well, you know what they say about a fool and his gold.

“That’s the beauty of running a virtual world,” one friend of mine quipped when I sent him a link to the story. “You can add ‘taxes’ whenever you want.”