China unveiled a raft of new measures to rein in spending and content in online games, signaling the start of another industry crackdown that wiped out roughly $54 billion of Tencent Holdings Ltd.’s value.
Beijing’s top gaming regulator on Friday published draft rules broadly designed to clamp down on practices that encourage players to spend more money and time online. Among other things, they include a ban on rewards for frequent log-ins, forced player-duels and a vague prohibition on any content deemed to violate state secrets.
The sweeping restrictions, which likely surprised industry players and investors, suggest Beijing is getting ready to launch another crackdown on the world’s largest mobile gaming arena. Tencent slid as much as 16% — its biggest intraday fall since 2008 — while smaller rival NetEase Inc. dived 28%. Nexon Co., which derives a chunk of its revenue from China, fell 8%.
Bilibili Inc., a social media service popular with gamers, fell 6.1%.
Xi Jinping’s administration has sought to combat gaming addiction, blaming online entertainment for the rise of myopia among youths. Critics have also linked its rise to various ills from unemployment to low birth rates. At the height of the tech-sector crackdown, the government froze approvals for new titles and launched several investigations into content, forcing developers including Tencent to modify certain games.
“This will deal a blow to the overwhelming majority of games in China, except those that sell copies. Companies will need to overhaul their monetization models, including how they charge money from different tiers of players,” said Zeng Xiaofeng, a vice president at Niko Partners.
The latest rules emerged after Beijing in 2023 appeared to thaw on the sector. Officials in past months had encouraged esports for instance as an engine for the post-Covid economy. Xi himself attended the opening ceremony of the 19th Asian Games in Hangzhou, which featured professional gaming among the medals up for grabs for the first time.
In December 2022, Tencent secured a green-light for a clutch of major releases including Valorant and Pokémon Unite — a milestone that reinforced hopes China was easing its two-year crackdown on Big Tech. The WeChat operator is now locked in a fierce battle with NetEase as it rolls out casual title Dream Star in hopes of replenishing an aging gaming portfolio.
Both companies have poured advertising and other promotional costs into the so-called party royale genre, at a level unseen in recent years.
China’s gaming market was set to grow almost 14% to 302.9 billion yuan ($42.4 billion) in 2023, reversing a 10% decline from the year before, according to data provider CNG.
Yet the Communist Party since 2020 has waged a campaign against a private sector it regarded as amassing more power and expanding recklessly, an effort that managed to rein in once-dominant tech sector leaders such as Jack Ma’s Ant Group Co. and Alibaba Group Holding Ltd. The crackdown on gaming actually pre-dated that movement, with the first suspensions of game approvals starting around 2018.
The government now wants to set a cap on how much money each player can spend within a title, according to the draft.
The regulations also asked that game publishers operating abroad respect Chinese laws and culture and refrain from endangering national security, without elaborating. Tencent is the world’s largest gaming publisher, with investments in studios from Epic Games Inc. in the US to Supercell in Europe. The agency will take feedback on the proposed rules for a month, without saying when they take effect.
“It’s hard to quantify the impact at this stage but the draft rules raises concerns over the gaming companies’ monetization prospects,” said Daisy Li, a fund manager at EFG Asset Management HK Ltd. “With the rules, gaming players behavior could change and the companies daily active users could take a hit.”
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
