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China Imposes Strict New Rules on Online Gaming Industry

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Dec 26, 2023

China has introduced sweeping new rules aimed at curtailing “excessive” spending in online games, sparking a massive sell-off of gaming stocks. The new regulations impose limits on how much time and money minors can spend on games, restrict certain monetization practices, and tighten oversight over gaming content.

Key Details of Gaming Crackdown

On December 21st, 2022, China’s National Press and Publication Administration (NPPA) published a new set of draft rules titled “Notice on Preventing Minors from Indulging in Online Games, Strengthening the Comprehensive Governance of the Online Game Market, and Creating a Healthy Online Game Environment.”

Some key aspects of the rules include:

  • Minors (under 18 years) can only play games for 1 hour per day on weekends and public holidays. No gaming allowed on school nights.
  • spending limits imposed for all players – max 200 RMB per month, with the ability to top up another 100 RMB.
  • Bans certain monetization practices like loot boxes and “gacha” mechanics that induce repetitive purchases.
  • Prohibits converting in-game virtual currencies into real-world money. Virtual currencies can only be used to purchase virtual items.
  • Tightens oversight over game content – games cannot include gambling, pornography, or politically problematic content.

These come on top of existing rules from 2021 that limit gaming for minors to just 3 hours a week.

Share Prices of Major Gaming Companies Plunge

Stocks of China’s major gaming companies like Tencent and NetEase plunged over 10% following the news, wiping out nearly $60 billion in market value.

Tencent’s share price fell 3.5% to its lowest level since 2016. Its subsidiary and Asia’s largest gaming firm by revenue, Sea Ltd, saw shares tumble 15%.

NetEase stock dropped 15% in Hong Kong.

The bloodbath underscores investor fears over the business impact of China’s tightening oversight.

Company Loss in Market Value % Share Price Drop
Tencent $46 billion 10%
NetEase $14 billion 15%

Chinese authorities have been cracking down more strictly on the technology, education and gaming sectors over the past two years to limit their influence and address social problems like gaming addiction among youth.

Impact on the Gaming Industry

Analysts say these new rules, if implemented, will result in a major revenue hit for gaming companies.

Limiting play time and capping spending will curtail the lucrative business built around inducing users to play and spend more money on popular mobile and online games.

Banning gaming tokens will eliminate the play-to-earn model that connects in-game economies to cryptocurrencies and NFT trading.

Smaller game developers and indie studios are likely to bear the brunt as they rely more heavily on in-game transactions for revenue. Larger studios have more diversified income streams to offset declines.

Multiplayer battle arena games and RPGs full of microtransactions and progression loops will need significant revamps. Single player, non-combat and educational games may benefit.

The rules will also accelerate the sector shift towards overseas expansion and focus on international markets for growth.

Government Signals Support for Gaming

Facing backlash after the $60 billion rout, Chinese authorities are now attempting to soften their stance and restore investor confidence.

On December 24th, the NPPA approved 95 new video game titles, the first batch following the new rules.

Top NPPA official Ren Xiaosheng stated that the agency “fully supports and guides the healthy development of the online gaming industry”.

China’s state-run press also published commentary arguing the need for strong regulation, while pledging that policies will be optimized around actual implementation.

Both Tencent and NetEase announced share buyback programs over the next 6-12 months to stabilize stock prices.

So while the regulatory squeeze continues, the government does not appear intent on destroying the industry completely.

What’s Next for China’s Gaming Sector

The draft rules will now likely undergo revisions based on feedback during a public consultation period. Enforcement details still need to be finalized around aspects like age verification mechanisms and monitoring play time.

If implemented in their current form, these will necessitate significant changes to game design, monetization strategies and age controls. Business models will pivot towards alternative revenue streams like in-game advertising.

Chinese studios will focus more heavily on exporting games globally, as well as diversifying into related sectors like esports, music, live streaming and animations. Tencent already derives over half its gaming revenue internationally.

For the Chinese government, curbing gaming addiction is part of a wider push towards “common prosperity” that narrows the rich-poor gap. Regulators will closely monitor implementation and doubles down if rules are not followed. Harsher measures could be enforced if gaming disorders are not curtailed.

So while the industry reels from significant near-term hurdles, studios are already adapting business models and geographic footprints to thrive in China’s tightly controlled but still lucrative gaming market.

AiBot

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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