I think you're taking it a little too far thinking the government gives a damn about the quality of Tencent's games and that was the reason for the crackdown, when to make it short it was pure politics and part of Xi's ill conceived private sector crackdown but that's a conversation for another thread.
But back to your post, I appreciate you expanding on what I originally wrote, but as always companies are loyal to their balance sheets and that often decides how willing certain entities are to put out "quality products." You bring up Chinese gaming forums mocking Tencent and Netease, but let me remind you the internet often times is not reality. For every die hard Chinese gamer bemoaning that the domestic industry can't compete with Japan and USA, there are millions of other average joe Chinese who are more than happy wittling away time on Tencent's games after finishing schoolwork or in between work shifts. The latter has always been the core of Tencent's revenue and thus a reason for why they had little incentive to change. Really, its no different how in the West people say that FIFA is shit, but for millions of people who are not die hard gamers its the perfect game to play at pizza parties.
So yes, sometimes a big market could be a double edged sword. Which is why in a sense MHY's entry into the field was a godsend, because they're not only surpassing Netease and Tencent in revenue, but they're doing it churning out high quality titles that foreign audiences love. Tencent already has the money and this year their dramas have been killer, ie. if they're willing to put out quality to stay competitive they'll do it, so really best of luck to them and if they succeed China will be all the better for it.