Chinese video gaming stocks remain weak following their plunge last Friday after China’s gaming regulator published draft rules designed to restrict practices that encourage video game players to spend more money and time online. The markets had hoped that the Chinese government was finished cracking down on China’s big tech companies. Instead, last Friday’s action suggested that the Chinese government still has a strong appetite for trying to control tech.
Last Friday’s sweeping restrictions announced by China’s gaming regulator caught investors off guard and harkened memories of the tech crackdown in 2021 when various government agencies imposed curbs on sectors from e-commerce to entertainment while decimating the online education industry by declaring profits illegal. The restrictions sparked a rout in Chinese gaming stocks, with Tencent Holdings, NetEase, and Bilibili losing $80 billion in market value.
The draft released by regulators last Friday encompassed caps on the amount each player can spend within a game, a ban on rewards for frequent long-ins, and forced player duels. Some analysts are concerned the new rules will significantly reduce game developers' monetization flexibility. Also, ABRDN said that “previous clampdowns were more on minors, which didn’t matter as much for monetization, but these new restrictions seem broad-based across all users.”
Since 2020, China’s Communist Party has waged a campaign against technology stocks in the private sector, which it regarded as amassing too much power and expanding recklessly. Shanghai Junnfu Private Fund Management said, “The government gaming curb measures will hurt gaming companies’ earnings, but the more important concern is people are worrying that more measures targeting the sector will come, just like what the government did to the education sector in the past.”
The latest rules on video games come as a surprise as China appeared to have thawed on the sector. Chinese officials in recent months have encouraged esports, as President Xi Jinping even attended the opening ceremony of the 19th Asian Games in Hangzhou, which featured professional gaming among the medals for the first time. According to data provider CNG, China’s gaming market was set to grow almost 14% to 302.9 billion yuan ($42.4 billion) in 2023, reversing a -10% decline in 2022. Wocom Securities Ltd said, “Strict regulation will inevitably hinder the long-term development of the online gaming industry, raising doubts about whether the government is contemplating a new round of regulatory direction.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
