Competitor plays a mobile game during the E-Sports and Music Festival Hong Kong 2019. (Photo by Ivan Abreu/Getty Images for Hong Kong Tourism Board)
Getty Images for Hong Kong Tourism Board
Chinese regulators are planning sweeping curbs on online games, spooking investors and causing two of its most prominent gaming tycoons to lose a combined $10.2 billion in paper wealth in a single day.
In an unexpected move, the National Press and Publication Administration unveiled Friday a set of draft rules that would rein in spending on online games. The rules would cap the amount users can deposit in gaming accounts and ban the use of online rewards to encourage game-playing.
After the plans were released online, shares in Chinese gaming and social media giant Tencent dived as much as 16.8% in Hong Kong. Competitor NetEase’s shares plunged as much as 28% in the Asian financial hub. As the value of their stakes tumbled, Tencent cofounder Ma Huateng (also known as Pony Ma) saw $3.8 billion being wiped from his net worth and NetEase founder William Ding‘s wealth fell $6.4 billion.
“If the rules are truly implemented, the impact on revenues will be huge,” says Cui Chenyu, a Shanghai-based analyst at advisory and research firm Omdia. “The reward mechanism, for example, is a quite important marketing tool.”
Charlie Chai, a Shanghai-based analyst at research firm 86 Research, says the draft rules are at an advanced stage and he doesn’t expect major changes. It is likely to affect everything from monetization to user engagement, as authorities are proposing a spending limit on all users. Officials say online that they are canvassing public opinion through Jan 22, 2024.
Representatives from the two companies didn’t respond to requests for comment.
China’s gaming industry, which is the world’s largest with $45 billion in revenues last year, has long been subject to regulation. It has been repeatedly blamed for causing addiction among younger players and even health problems such as myopia. In 2021, authorities limited play time to just three hours per week for players under the age of 18. They later stopped issuing licenses to online game publishers, resulting in an eight-month freeze that wasn’t lifted until April 2022 after companies introduced more protective measures for minors.
Currently, the number of gaming approvals hovers around 80 to 90 titles per month, much slower than before. But both smaller studios and giants such as Tencent and NetEase have been able to publish new games. Last week, for example, Tencent launched DreamStar, a mobile game in which users create cartoon characters to battle each other. Similar to NetEase’s hit Eggy Party, the game offers rewards including cash rebates to encourage more frequent play.
“The tightened regulations appear to target the most important drivers of mobile gaming profitability and today’s large drops may actually be underreactions,” LightStream analyst Mio Kato wrote in a note published via research platform Smartkarma. “Daily login rewards train habitual behavior and drive individuals to invest more time and then money.”
