Chinese online gaming stocks experienced a resurgence on Wednesday after the country’s top gaming regulator expressed a commitment to carefully considering the concerns of all stakeholders regarding proposed regulations aimed at curbing excessive online gaming and spending. The draft guidelines, released by China’s National Press and Publication Administration, had previously caused a decline in the stock prices of major players such as Tencent, NetEase, and Bilibili. This article examines the rebound and the potential impact of the proposed regulations on the Chinese gaming market.
On Wednesday, NetEase shares saw a significant surge of up to 14% during early trading as Hong Kong markets reopened after the Christmas holidays. This recovery came after the stock had plummeted around 25% on Friday following the announcement of the draft rules. Rival company Tencent also experienced a positive boost, climbing nearly 4.5% in early trading. Tencent had previously lost over $43 billion in market value during Friday’s sell-off. Bilibili, a social media platform that relies heavily on Chinese domestic gaming for its revenue, saw a more modest increase of 2% in its stock price after a 10% decline on Friday.
The draft rules set out by the National Press and Publication Administration primarily target revenue-generating practices and aim to prohibit certain activities. Specifically, the regulations suggest banning incentivized daily sign-ins for games and imposing limits on recharging. Additionally, the rules would require game owners to abstain from facilitating high-value transactions and duels between players. The administration suggested issuing pop-up warnings to users exhibiting “irrational consumption behavior.” These regulations were met with concern by the gaming industry and investors, as they posed potential challenges to the profitability of online gaming companies.
Following the backlash from stakeholders, China’s top gaming regulator pledged to carefully study their concerns, particularly regarding Articles 17 and 18 of the draft rules. Article 17 would ban online games from forcing players into compulsory duels with others, while Article 18 would prohibit the provision or endorsement of high-value transactions in virtual entities through mechanisms such as auctions or speculative activity. In addition, the National Press and Publication Administration highlighted the need to eliminate daily login rewards, effectively deterring excessive gaming habits. This response aimed to assuage market concerns and maintain balance in the industry.
Industry Impact
The introduction of these draft rules comes at a time when the broader China technology industry is recovering from a previous crackdown initiated in late 2020. However, analysts from Nomura cautioned that while the measures taken by the regulator may provide some relief, they might not be sufficient to eliminate the lingering apprehension caused by the draft regulations. The gaming companies will need to adapt and find alternative revenue streams to compensate for potential losses resulting from the implementation of these rules. Nonetheless, the approval of over 100 new domestic games by the National Press and Publication Administration on Monday, along with the authorization of 40 imported games, may help alleviate concerns to a certain extent.
The recovery of Chinese online gaming stocks following the regulator’s assurance to thoroughly examine stakeholder concerns demonstrates the volatility and sensitivity of the industry to regulatory changes. While the proposed regulations aim to address issues of excessive gaming and spending, their potential impact on the market raises questions about the future profitability and growth of major gaming companies in China. As the regulatory environment evolves, gaming companies will have to navigate these changes carefully to ensure their continued success in the world’s largest online gaming market.
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