Boost for Naspers as China tempers gaming regulations
Technology companies including Naspers’ Tencent got some relief this week after Chinese authorities removed draft regulations intended to curb spending on video games, thought that may prove temporary as the market awaits the revised rules.
After news that the regulations published in December no longer appeared on an official website, there was a dramatic recovery in the Naspers share price, in line with a jump in the value of its holding in Chinese games company Tencent, which was initially battered when the documents were proposed last month.
Xiaoyue Hu, an analyst at Haitong Securities, said in a note to clients reviewed by Reuters the removal of the announcement could signal “there might be further changes in the new measures”. Previous regulatory measures seeking opinions had a track record of staying on the government’s websites even after the consultation period ended, he added.
The National Press & Publication Administration’s (NPPA) website went down on Tuesday, the day after the expiry of a consultation period on the new rules. Shares in Tencent immediately jumped 6% and continued to rise this week in tandem with the share prices of Prosus, which holds 26% of Tencent, and Naspers, which in turn holds 43% of Prosus.
When the regulations were announced on December 22, Tencent shares fell 17%, and Prosus saw its largest one-day fall. The NPPA draft guideline, titled “Measures for the administration of online games”, consolidated gaming regulations into 64 articles, 10 of which contained new guidelines.
Primarily, they were geared towards reducing “microtransaction” spending within games — a major source of revenue for the sector — and children’s access to games. That came on top of restrictions imposed in September 2021 that also had battered the market.
However, the scale of the market response appeared to take the Chinese government by surprise. A week after the document was published, the government fired Feng Shixin, head of the publishing unit of the Communist Party’s publicity department, which oversees the NPPA.
While his removal suggested a step back from a more restrictive approach to gaming, the sector held its collective breath for the next three weeks as the consultation period played out.
The removal of the new guidelines as the deadline passed suggested that the restrictions would be completely overhauled. In effect, as some have put it, a spring breeze seems to be stirring after a harsh regulatory winter in China’s gaming industry. The cold winds of restrictions also meant a monthslong freeze on new game approvals that began with a crackdown in September 2021, leading to ongoing industry jitters.
In 2022, the Chinese gaming market shrank for the first time ever as authorities called out in-game spending, monetisation models, and “inappropriate” content. Three days after the 2023 guidelines had been published, however, the NPPA approved 105 new online games, the most in a single batch in 2023. That Christmas present, too, suggested an awareness that regulators had overstepped the mark.
The NPPA continued to approve games during January. Nevertheless, the industry isn’t in the clear yet. It once again waits with bated breath, this time for the revised rules, which will still have an impact on areas such as data privacy and spending by children.
There is also a likelihood the authorities will incentivise domestically developed games, which have risen in prominence. They can be more tightly controlled and will probably be more compliant with the government’s preference for “healthy” gaming, implying a focus on educational and “high quality” content, as the “administration of online games” document had put it.
The apparent shift in attitude towards the sector in general has come at the same time as efforts by the Chinese government to shore up the economy and falling stock markets. On Wednesday the People ’s Bank of China (PBOC) announced a 50 bps cut in
required bank reserves, the biggest in two years. According to Reuters, that will pump about $140bn (R2.6-trillion) of cash into the banking system.
PBOC governor Pan Gongsheng said the bank would publish policies on improving commercial property loans, “giving hope to investors who have been frustrated by China’s efforts to put a floor under a real estate sector that underpins consumption and household wealth”, Reuters reported.
It is probably no coincidence the step back on the gaming sector comes in the same week, indicating recognition by authorities that constraints of their own making were holding back the market. Still, that doesn’t mean they will abandon their view that gaming addiction is a “spiritual opium”, as state media declared of computer games in 2021.
Such alarmist terms used in newspaper headlines led to the first playtime limits for minors in August 2021, when they were restricted to three hours of gaming a week. The state even dictated the days on which they could play: one hour a day on Fridays, weekends and holidays.
The new curbs would have added content control, such as an emphasis on preventing violence, gambling and historical distortion; stricter age verification procedures and playtime restrictions; a stricter approval process for new online games; enhanced data protection requirements; limitations on in-game purchases; and regulations on monetisation models such as virtual currency and “pay-to-win mechanics”.
The last of these was intended to encourage fair play in computer games. It appears the Chinese government has been forced to take a leaf out of its own book.