Tencent and Netease rally behind signs that China could facilitate its gaming proposition

Tencent and Netease rally behind signs that China could facilitate its gaming proposition

Tencent and Netease rally behind signs that China could facilitate its gaming proposition

Share prices of Chinese video game companies rebounded on Wednesday after investors seized on signals that the government had doubts about proposed gaming regulations.

Since the weekend, regulators have tried to calm the market after shares of the two largest video game companies, Tencent and Netease, fell on Friday.

When trading resumed after Hong Kong’s four-day holiday weekend, Tencent rose about 4 percent and Netease jumped 12 percent, recovering some of their losses.

The events of recent days highlight the forces of attraction and repulsion in Chinese policymaking. The country’s top leaders have acknowledged they need to stabilize the economy, which has been slow to recover from near-shutdown during the Covid pandemic. But tight government control over how companies conduct business continues to cause uncertainty in markets.

China’s National Press and Publication Administration, which licenses game publishers and oversees the industry, unveiled a proposal on Friday to effectively reduce the number of people playing games. The plan took the industry by surprise, and investors sold tens of billions of dollars of company stock.

The regulator issued a statement on Saturday emphasizing that the draft rules aim to “promote the prosperity and healthy development of the industry”, and said it was “listening to more opinions comprehensively and improving regulations and provisions”.

On Monday, the agency announced it had authorized about 100 new games, after authorizing 40 more on Friday. And a semi-official association affiliated with the agency said the additional gaming approvals were “positive signals” that the agency supported the industry.

The new regulations would limit the amount users could spend in games for things like improving character features or purchasing virtual weapons or other items used by characters. It would also ban rewards that companies use to encourage players to return. The proposal does not specify a spending ceiling.

“The proposed regulations would inevitably lead to changes in current practices and potential revenue losses in the short term,” said Xiao Lei, an assistant professor at the University of Hong Kong’s business school.

But, he added, their impact could be less than expected, to the extent that the authorities could adjust or abandon certain provisions. Consumer demand for games and the social interactions they enable would not be affected, he added.

Analysts at Nomura, a Japanese bank, said in a report Tuesday that the rules could “significantly harm” the ability of Chinese video game companies to make money.

The “sunset measures” put in place by the government since Friday, Nomura added, will assuage investors’ concerns but will not dispel the shadow they cast over China’s video game sector.

The industry is still reeling from restrictions first imposed in 2019, targeting what the government saw as online gaming addiction among minors, as well as a broader crackdown on tech companies. Regulators also blocked publishers from issuing any new gaming licenses for an eight-month period that ended in April 2022.

For their part, Tencent and Netease have downplayed the impact of the proposed regulations.

The draft rules did not “fundamentally change the game’s business model, operating rhythm, or other key elements,” Vigo Zhang, vice president of Tencent Games, said in a statement Friday. Netease said this weekend the proposal would not have a substantial impact on its business, adding it would share its views with authorities.

The regulatory agency said it would accept comments on the proposal until January 22.