China has unveiled sweeping new restrictions on the country’s massive online gaming industry, sending shares of industry giants Tencent and NetEase plunging. The new rules aim to curb gaming addiction among minors and require companies to curb “unhealthy tendencies” in their games.
New Draft Rules Target In-Game Spending and Play Time
On December 22nd, China’s National Press and Publication Administration issued a new set of draft rules significantly tightening oversight of online gaming companies . The strict regulations require gaming companies to curb minors’ play time and spending in games.
Specifically, the rules call for limiting minors to just 3 hours of online gaming per week, with a 1-hour-per-day cap. They also prohibit all in-game purchases by those under 18 .
Additionally, the draft legislation bans using virtual currencies to pay for in-game items. Companies must instead directly charge real money, with strict caps – no more than $57 per month for those under 16, or $144 for those 16-18 .
The rules represent China’s latest effort to reign in an online gaming industry officials believe is fueling gaming addiction and harming minors’ well-being . They also aim to curb “unhealthy tendencies” like violence or pornography in online games popular with teenagers .
|Play Time Limits
|Game Content Restrictions
|Rules prohibit violence, pornography, gambling elements
Table 1. Key provisions of China’s draft online gaming rules
Tencent, NetEase Shares Plummet on Regulatory Fears
The release of the harsh draft rules on December 22nd sent shares of China’s two largest gaming companies plunging, wiping over $60 billion off their market values .
Tencent, the world’s largest gaming company and creator of blockbuster titles like Honor of Kings, saw its Hong Kong-listed shares plunge 10% at one point. The company’s market capitalization declined by around $46 billion. Meanwhile, rival NetEase’s shares sank by over 20% during trading .
Analysts said investors were spooked by both the strictness of the proposed measures, as well as the regulatory uncertainty they represent. China has implemented rolling crackdowns on the technology sector over the past two years, but online gaming had emerged relatively unscathed until now .
Gaming industry profits are likely to take a significant hit if the draft rules come into effect. One analyst forecast Tencent’s earnings could decline by 13-18% as a result .
New Rules Part of Wider Crackdown on Gaming Addiction
The latest draft gaming legislation represents part of a years-long crackdown by Chinese authorities on gaming addiction among minors. Officials have grown increasingly concerned over the social impact of online gaming .
Last August, Chinese state media described online games as “spiritual opium,” signaling a harsh regulatory response . Tencent responded by introducing facial recognition “midnight patrols,” to catch children posing as adults to circumvent play-time restrictions .
However, officials were reportedly not satisfied with gaming companies’ self-imposed restrictions. In November, a state-backed gaming industry group suggested even tighter government oversight would likely follow .
The severity of the latest draft rules suggests Chinese authorities now aim to impose rigid play-time and spending limits themselves, rather than rely on gaming companies’ enforcement.
International Game-Makers Also Impacted
While aimed at domestic gaming giants like Tencent and NetEase, China’s proposed gaming restrictions could also impact international video game producers.
Foreign game-makers have increasingly looked to tap into China’s nearly 720 million gamers in recent years. However, the new draft regulations mean popular foreign titles like Activision Blizzard’s Call of Duty may need significant changes to comply with Chinese rules.
Adaptations to satisfy regulators could include removing certain depictions of violence or gambling. Companies may also need to implement separate Chinese servers with strict play-time and spending restrictions .
Adapting games and systems for the Chinese market under these tighter restrictions could prove costly. Smaller gaming firms may abandon plans to enter China altogether if compliance costs become too high .
Uncertain Impact as Public Consultation Continues
The draft regulations released last week will now undergo a public consultation period which could last months. Their final form and implementation date remains uncertain .
Gaming companies and investors hope the proposed rules may be softened before finalization. However, China’s track record suggests a restrictive approach is likely to prevail .
Tencent has already pledged to abide by any finalized legislation. The company may also unveil more self-regulations in a bid to stave off the harshest potential impacts .
However, China’s crackdown on gaming addiction and restrictions on play-time look set to continue. Investors brace themselves for further uncertainty as the world’s largest gaming market faces sweeping upheaval.
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