Chinese gaming sector in turmoil as regulators announce new proposals
China’s $45bn (£31.3bn) gaming industry has been dealt a blow by proposals to limit the time and money spent on the sector.
New rules including spending limits for online games, a ban on games from rewarding players for logging in every day and a ban on lucky draw features from being offered to minors were announced by regulators last week, sparking panic among investors.
Shares in Tencent fell by more than 12% on Friday, losing more than $43bn in market value, while NetEase shares fell by more than 24%. BiliBili, a social media site that derives about 17% of its revenue from gaming, saw its shares fall by nearly 10% before the regulator on Saturday appeared to soften its stance slightly. State media said that the authorities had heard the “concerns and opinions raised by all parties”, and that there may be further “modifications and improvements” to the proposals.
China’s massive gaming sector was first targeted by regulators in 2021, as Beijing sought to curb the amount of time that young people spent playing video games. At the time, state media described video games as “spiritual opium”. Under-18s were limited to one hour of gaming per day on Fridays, weekends and holidays, a rule that was hard to enforce but which nonetheless sent the industry into a tailspin.
In 2022, the online gaming sector shrank for the first time on record.
Despite the crackdown, video games remain popular. Domestic revenue grew 13% this year. In July, the government-run industry association CGIGC said the number of gamers in China had reached a record 668 million in the first half of the year, equivalent to half of the total population. A study published this year by researchers at the University of York found that earlier restrictions, introduced in 2019 to limit gaming to 90 minutes a day, had no impact on heavy gaming.
Shares in Tencent and NetEase had recovered from their lowest levels by Wednesday on the Hong Kong stock exchange, but both are still below where they were before Friday.
Vigo Zhang, the vice-president of Tencent Games, said the company
would strictly implement any new regulations.
Analysts said smaller game companies would be likely to be hit hardest by the new restrictions. About 14,000 small studios and video game firms reportedly deregistered in the second half of 2021, after Beijing’s first crackdown, during which new game approvals were halted for nearly a year.
The latest proposals include measures that will be welcomed by the industry, such as requiring regulators to process new games licences within 60 days. Beijing also approved on Friday 40 new imported games for domestic release. On Monday, a further 105 new games were approved, showing the authorities’ support for the development of online gaming, according to an industry association.
The proposals are open for public consultation until 22 January.