CHINA ANNOUNCES NEW GAMING RESTRICTIONS, TECH STOCKS PLUMMET
China has introduced a new set of proposed regulations aimed at restricting the time and money people can spend on online gaming, triggering a market sell-off in some of the country's major tech giants. The draft regulations, published by the government regulator, are intended to limit in-game purchases and prevent obsessive gaming behavior. The rules also reinforce a ban on "prohibited online game content... that endangers national unity" and "endangers national security or harms national dignity and interests."
The news led to a sharp decline in the shares of tech giants, with Tencent, the industry leader, falling over 12.0% in Hong Kong by the close. The regulations propose limits on recharging in-game wallets and eliminating features designed to increase gameplay time, such as rewards for daily log-ins.
This move follows Beijing's previous actions against the gaming sector in 2021 as part of a broader crackdown on Big Tech. The proposed regulations are seen as a signal that the government's focus on the industry has not subsided and may even be intensifying. The gaming industry in China is the world's largest, and Tencent is a global leader in terms of revenue.
The shockwaves from the announcement affected Hong Kong's Hang Seng Index, which initially rallied but ended down 1.7%. Other tech firms were also impacted, with Meituan dropping nearly 4%, and Alibaba down around 2%. The proposed regulations are viewed as unexpected, and analysts speculate they may be an attempt to divert consumer spending to other parts of the sluggish economy or a response to elevated levels of youth unemployment.
The regulations could pose challenges for many games in China, and companies may need to adjust their monetization models. Some independent game studios, however, see the regulations as an opportunity for those focusing on innovation and high-quality user experience. Cheng Gong, CEO of Chengdu-based Han-squirrel Studio, mentioned that studios emphasizing these aspects could benefit from the changes.
The gaming industry in China has already faced restrictions, with minors only allowed to play online between 8:00 pm and 9:00 pm on Fridays, Saturdays, and Sundays during the school term. Gamers are required to use their ID cards during registration to verify their age, and gaming services to children outside government-mandated hours are prohibited. The regulations, if implemented, could have far-reaching implications for the gaming industry in China.