China, the largest global games market that experienced growth in 2023, is now encountering a challenge. The country’s regulatory authorities have introduced a comprehensive set of regulations targeting spending and rewards that promote video games. These regulations have negatively impacted the Chinese gaming industry and the associated companies.
Implications of China’s recent regulations
China has instituted a ban on daily login rewards and common incentive mechanisms in online games, including rewards for initial spending and consecutive spending on games.
In 2021, China imposed stringent playtime restrictions for players under 18, attributing the move to concerns about gaming addiction. The suspension of approvals for new video games lasted approximately eight months. Although the formal crackdown concluded with the resumption of game approvals, regulators persisted in implementing measures to limit in-game spending.
In addition to prohibiting reward features, game developers will need to establish restrictions on the amount players can add to their digital wallets for in-game expenditures. Games are also barred from providing probability-based lucky draw features to minors, aiming to curb the speculation and auctioning of virtual gaming items within the industry.
The impact of these rules on China’s online gaming industry
The regulations are expected to establish spending constraints for online games. As reported by Reuters, these recent rules have instigated concern among investors, resulting in a loss of approximately $80 billion in market value for China’s two largest gaming companies. Investors are grappling with the potential ramifications on earnings and anticipating additional restrictions following the regulatory decision.
Following the release of the new draft rules by the National Press and Publication Administration, Tencent Holdings, the world’s largest gaming company, experienced a nearly 16% decline in its shares. Simultaneously, NetEase, its closest competitor, witnessed a plunge of as much as 25% in its shares. Tech investor Prosus, which holds a 26% stake in Tencent, saw its shares similarly depreciate by 14.2%.
Tencent has not yet publicly commented on the new rules
Tencent Games’ Vice President, Vigo Zhang, stated that the company will diligently adhere to regulatory requirements. Zhang highlighted that the ongoing regulatory focus is on ensuring companies maintain “reasonable business models and operating cadence,” and the new draft rules don’t alter this emphasis. He also mentioned that since 2021, minors have been spending significantly less money and time on Tencent’s games, coinciding with Beijing’s increased focus on minor protection.