Regulators unveil sweeping new rules to curb “video game addiction”
China has unveiled drastic new restrictions on online gaming companies and video game users, imposing strict limits on play time and money spent on in-game purchases in an effort to curb what regulators call “video game addiction” especially among minors.
The new rules, released in draft form on December 22nd by the National Press and Publication Administration (NPPA), China’s top media regulator, aim to crack down on what officials see as excesses of game play that are “affecting the physical and mental health of minors.”
Specifically, the regulations would:
- Limit minors to just 3 hours per week of gaming during term periods, capped at 1 hour per day on Fridays, weekends and holidays
- Restrict adults to 2 hours of gaming on weekdays and 3 hours per day on weekends and holidays
- Ban gaming between 10pm to 8am daily
- Limit monthly spending on in-game virtual items to 200 – 400 yuan ($29 – $58), varying by age
- Prohibit game features that induce addiction such as login rewards and lucky draws
- Require real-name verification for all gaming accounts
The draft rules are currently open to public feedback until December 31st, after which a finalized version is expected.
Tech giants Tencent, NetEase shares plummet
Release of the strict new gaming curbs prompted a massive stock selloff, wiping over $60 billion off the market value of Chinese tech giants Tencent and NetEase.
Tencent Holdings, which operates mega-popular games like Honor of Kings, saw its Hong Kong-listed shares plunge 8.8% the day of the announcement. NetEase Inc meanwhile sank nearly 15% in Hong Kong.
Both gaming leaders also suffered heavy losses on Wall Street, with New York-listed ADRs of Tencent plunging 11% while NetEase ADRs closed down 20.7%.
The steep market reaction shows investors are bracing for a sizable hit to revenues given the immense contribution of video games to bottom lines.
Tencent already endured past gaming crackdowns in 2021 on play time for minors and monetization limits. The company reported its first ever revenue decline that year, largely tied to gaming curbs, though has rebounded strongly in 2022.
This latest round of restrictions however are seen as even more harsh, hence the severe investor selloff.
Previous signs of gaming industry pressure
Earlier signals had forewarned of renewed gaming scrutiny in China and a potential regulatory reckoning.
Reports emerged in November that top Chinese officials told Tencent and NetEase to focus on preventing gaming addiction and limit play time or else face consequences.
Furthermore, just 46 new video games were approved for release in China during all of 2022 versus over 5,000 approvals in previous years. The release pipeline had been near frozen for over 17 months until April 2022, creating immense pressure on gaming leaders.
So while abrupt and sweeping, the latest gaming rules were not entirely unexpected given the broader state intervention in tech industries under the Xi Jinping administration alongside rising social concerns over gaming addiction.
Still, the draft regulations caught investors and companies off guard in terms of the unprecedented severity of the measures.
Further tightening expected
Most industry analysts expect the finalized gaming rules to remain stringent, though allowances could be made on certain details.
“We anticipate limited adjustments before the rules are finalized but believe the regulations will remain quite restrictive overall,” said Alicia Yap, an analyst at Citi.
With public feedback open for another week, gaming companies and trade groups are lobbying regulators to ease some provisions like the total spending caps which are seen as excessively low.
Nonetheless, China is almost certain to keep real-name verification requirements along with strict play time limits, especially for minors. And broader curbs on gaming monetization and addiction tactics will remain intact.
“There is very little [gaming companies] can do other than accept the rules, cut costs and hope netizens get bored of playing mobile games in a few years,” remarked Dan Wang, chief economist at Hang Seng Bank (China).
Savvy gaming leaders like Tencent however have been steadily expanding into non-gaming entertainment apps and services in prudent preparation for stricter state oversight of interactive entertainment.
International knock-on effects
Beyond battering gaming stocks, China’s newly aggressive stance against the world’s largest video game market is likely to have ripple effects globally according to industry watchers.
Many Chinese gaming companies have been seeking to grow their international user bases amid an already heavily constrained domestic market. International launches could face added delays however if product roadmaps need reworking to comply with stringent new playtime limits and monetization caps from Beijing.
Moreover, China’s latest gaming rules specifically highlight risks from foreign games and aim to limit their reach domestically. This could hamper opportunities for Western gaming giants like Activision Blizzard and Electronic Arts in the massive Chinese market.
At the same time though, the regulatory pressure on Chinese firms could allow global players to grab more worldwide market share in regions like Southeast Asia, Japan and South Korea.
Renewed warning against tech investments
For the investment community, the abrupt gaming crackdown reiterates broader warnings about overweighting Chinese technology names amid unpredictable state intervention.
While valuations of Chinese tech giants now sit at historical lows, government oversight of data, fintech and other strategic sectors continues ratcheting higher under Beijing’s broader “Common Prosperity” agenda.
“This latest episode serves as another reminder of regulatory risks,” investment bank Jefferies wrote in a note to clients. “We continue to advise investors to access China internet indirectly.”
So despite massive selloffs that could signal buying opportunities to some, many analysts and institutional investors remain wary of Chinese technology stocks given agents beyond commercial forces hold substantial sway over future prospects.
Key details of China’s draft online gaming regulations
| Rule | Detail |
|---|---|
| Playtime Limits |
|
| Time Restrictions | No gaming 10pm – 8am daily |
| Spending Caps |
|
| Addiction Tactics | Bans login rewards, lucky draws and other gaming features that can induce addiction |
| User Verification | Requires real-name registration for all gaming accounts |
So in summary, China has imposed unprecedented limits and oversight on video games usage through these draft gaming regulations sparked by addiction concerns, prompting Tencent and NetEase shares to plunge even as final rules get hashed out following a week of public feedback. The harsh crackdown reiterates volatile regulatory risks for China’s technology sphere, but could also open some gaming opportunities globally if Chinese firms turn their attention overseas amid constrained prospects at home.
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