Following the Chinese government’s new regulations aimed at limiting spending on online games, Tencent and NetEase, two of China’s leading gaming companies, suffered a significant blow. The draft rules, released by China’s National Press and Publication Administration, outlined restrictions on certain applications used by online games.
Tencent shares lost 16% of their value, which means a loss of nearly $80 billion!
The proposed rules would ban games from rewarding players for daily logins, initial spends on a game, or consecutive spends, Reuters reported. There will also be limits on the amount of money players can deposit into their in-game digital wallets.
While these rules are still in the draft stage and subject to possible changes, they are not expected to come into force until next year. However, the mere announcement of these regulations triggered a significant market reaction.
Shares of Tencent, known as the world’s largest gaming company, fell a staggering 16%, while NetEase suffered an even more significant decline, dropping 25% at its lowest point. The impact on market values reflects concern among shareholders about the potential consequences of these regulatory measures on the revenues and user engagement of these gaming giants.
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Morningstar analyst Ivan Su expressed concerns about the removal of incentives, stating that this could lead to a decrease in the number of daily active users and in-app revenues. He also suggested that such regulatory changes could force game publishers to make radical revisions to their game designs and monetization strategies.
The move comes after China introduced strict gaming time limits for minors in 2021 and temporarily suspended new game approvals due to concerns over gaming addiction. Although new gaming approvals resumed last year, recently published rules include a provision requiring regulators to process approvals within 60 days.