Chinese regulators announced a wide range of rules Friday aimed at curbing spending and rewards that encourage video games, dealing a blow to the world’s largest gaming market.
The new rules limiting spending on online gaming have caused panic among investors, wiping out nearly $80 billion in market value for China’s two largest gaming companies.
Online games will now be banned from giving players rewards if they log in every day, spend money on a game for the first time or if they spend money on a game multiple times in a row. These are all common incentive mechanisms in online games.
Shares of Tencent Holdings (0700.HK), the world’s largest gaming company, fell 16 per cent at one point, while shares of its closest rival, NetEase (9999.HK), fell 25 per cent after the National Press and Publication Administrations published new rules.
Shares of technology investor Prosus (PRX.AS) also lost 14.2 per cent in early trading on Friday, ranking among the top fallers in the all-European stock index (.STOXX). Prosus owns a 26 per cent stake in Tencent.
Steven Leung, executive director of institutional sales at broker UOB Kay Hian in Hong Kong, stated:
It’s not necessarily the regulation itself – it’s the policy risk that’s too high. People had thought this kind of risk should have been over and had started to look at fundamentals again. It hurts confidence a lot.
According to Tencent Games’ vice president Vigo Zhang, the new draft rules have not deviated from regulators’ continued focus on ensuring companies have “reasonable business models and operational cadence.”
Zhang added that minors have been spending historically low levels of money and time on Tencent Games since 2021, when protection of minors became a focus for Beijing.
Beijing has been increasing its control over video games over the years. In 2021, China set strict limits on playtime for children under 18 and suspended approval of new video games for about eight months, citing gaming addiction issues.
The new rules unveiled Friday are aimed at curbing in-game spending. In addition to banning rewards, games must also set limits on the amount by which players can top up their digital wallets for in-game spending.
The removal of these incentives is likely to reduce daily active users and in-app revenue, and could eventually force publishers to fundamentally overhaul their game design and monetisation strategies.
The games are also banned from offering probability-based lucky draw functions to minors, as well as allowing speculation and auctioning of virtual game items.
Meanwhile, Chinese regulators on the same day announced licences for 40 new imported games for domestic release, seen as a signal of Beijing’s willingness to allow more games to be sold in the country despite the draft rules on game spending.
The administration expects public consultation on the rules by 22 January 2024.
2022 was the toughest year on record for China’s gaming industry as overall revenue fell for the first time. China’s video game market returned to growth in 2023, with domestic revenue rising 13 per cent to 303 billion yuan ($42.6 billion), according to the CGIGC Industry Association.
