Plenty of minor Chinese gaming companies announced share buybacks hoping to reassure investors after regulatory action to curb consumer spending on games scared them off.
Last Friday, 22 December, the government published rules prohibiting online games from granting players rewards if they log in every day, spend money on the game for the first time, or if they make several consecutive spending on the game. Regulators classified such actions as common incentive mechanisms in online gaming.
Immediately afterwards, shares of gaming companies plunged. As of Monday evening, eight companies unveiled share buyback plans totalling up to 780 million yuan ($110 million), citing confidence in China’s gaming industry and the need to protect investors.
The series of buybacks followed a softening of stance by the National Press and Publication Administration, which issued a statement on Saturday claiming the Chinese government would further improve the proposed rules after “earnestly studying” public opinion.
On Monday, China’s video game regulator approved new licences for 105 domestic online games for December, which some analysts, including Charlie Chai, a Shanghai-based analyst at 86Research, believed “strongly demonstrated” that the authorities still supported the development of online gaming.
“The shift towards a more reconciliatory tone is quite notable. Apparently, the magnitude of that ‘mini rebellion’ by capital markets on Friday caught the regulator off guard, and allegations of backpedalling on previous commitments to ‘responsible policymaking that instills investor confidence’ has made [the regulator] nervous.”
The buyback plans helped stabilise share prices. Shares of Shanghai-listed G-bits Network Technology Xiamen (603444.SS) rose 2 per cent on Tuesday after falling 11 per cent since the publication of the draft rules.
Shenzhen-listed Perfect World Co (002624.SZ) shares fell another 2 percentage points on top of an initial 16 per cent drop.
The publication of the draft rules has fuelled fears that regulators are once again cracking down hard on the sector, even though the industry has only recently recovered from a long period of suppression in 2021 and 2022.
It remains to be seen how shares of Tencent Holdings (0700.HK), the world’s largest gaming company and its closest rival NetEase (9999.HK), will change this week after an apparent softening of the rules.
The two Hong Kong-listed companies lost a combined market value of $80 billion on Friday.
