Tencent, along with other major players in China’s online gaming industry, experienced a staggering loss of approximately $43.5 billion in market value. This substantial decrease came as a surprise to financial markets following the release of draft guidelines by China’s National Press and Publication Administration. As a result, shares of Tencent, NetEase, and Bilibili, three of the largest online gaming-related companies in the world’s biggest online gaming market, tumbled significantly. Analysts, such as Brian Tycangco from Stansberry Research, expressed concerns about the viability of existing business models that rely heavily on incentives and rewards to attract users and boost loyalty.
Tencent, the Shenzhen-based company behind WeChat and a major player in domestic online gaming, saw its shares plummet by approximately 12.4%. This decline resulted in Tencent experiencing its lowest closing level since end-November 2022. NetEase, which derives 80% of its third-quarter revenue from domestic online gaming, faced an even harsher blow as its shares plunged by 24.6%. These losses wiped out a staggering 115.1 billion Hong Kong dollars ($14.7 billion) from NetEase’s market capitalization. Additionally, Bilibili, a popular social media site that heavily relies on Chinese domestic gaming, experienced a decrease of 9.7% in its shares. As a consequence, Bilibili’s market capitalization suffered a loss of around 2.4 billion Hong Kong dollars ($307 million).
The Hang Seng Index closed down by 1.7% on the day of the market downturn, while the China Enterprises Index, which includes the largest offshore mainland blue-chip names listed in Hong Kong, ended the day down by 2.3%. While uncertainty loomed over the market, industry experts like Brian Tycangco expressed confidence that more clarity regarding the new regulations would be provided in the coming days and weeks. However, investors were not willing to wait around for the dust to settle. Tycangco emphasized the importance of improved coordination between the industry and regulators, highlighting the benefits it could bring to all stakeholders in the future.
China’s top gaming regulator released new draft guidelines, which outline measures aimed at curbing excessive gaming and spending within the online gaming industry. These regulations restrict owners of online games from engaging in high-value or expensive transactions related to virtual entities, whether through auctions or speculative activities. Furthermore, daily login rewards will be banned, and recharging limits must be implemented with pop-up warnings issued to users displaying “irrational consumption behavior.” The goal of these measures is to protect users from addictive behaviors and promote responsible gaming.
Vigo Zhang, vice-president of Tencent Games, emphasized that the new regulations do not fundamentally alter the business models and operations of the online gaming industry. Instead, Zhang viewed the guidelines as instructive guidance that supports the industry’s innovation of high-quality games. Tencent’s response indicates their commitment to adapting to these new rules while continuing to focus on providing enjoyable gaming experiences to their users.
These latest regulations come in the wake of a broader crackdown on the Chinese technology industry. The sector has been navigating through a series of regulatory challenges that began in late 2020. Just over a year ago, Tencent managed to secure rights to five foreign game licenses approved by the National Press and Publication Administration. However, Beijing’s crackdown on the gaming sector, which began in August 2021, posed significant obstacles for the industry. President Xi Jinping even attributed rising myopia and adverse psychological well-being among the country’s youth to addiction to online gaming. In response, the National Press and Publication Administration proposed limitations on the playing time of children under 18, allowing them to play online games for no more than three hours per week. Furthermore, they restricted legal game time to Fridays, weekends, and public holidays only between 8 p.m. and 9 p.m. Starting in early September.
The new regulations present both challenges and opportunities for the online gaming industry in China. While the sudden market decline has raised concerns and sparked uncertainties, it also highlights the need for the industry to adapt and innovate its business models. Companies like Tencent, NetEase, and Bilibili will need to revise their strategies to align with the new guidelines and prioritize responsible gaming practices. The collaboration between industry leaders and regulators will play a crucial role in shaping the future of the online gaming landscape in China. As the dust settles, the industry will have the opportunity to redefine itself and continue providing entertaining experiences while safeguarding users’ well-being.
Leave a Reply