China softens stance on gaming industry after $80 billion market value drop

  • China approved 105 domestic games, indicating a softer approach towards the gaming industry.
  • New gaming regulations led to a significant market value drop for major companies like Tencent and NetEase.

In a recent move signalling a softened approach towards the gaming industry, China has approved 105 domestic games on Monday. This decision comes in the wake of an $80 billion market value plunge last week, following the tightening of industry restrictions.

Among the approved titles are games operated by Tencent Holdings Ltd. and NetEase Inc., two of China’s leading game publishers. These companies had previously suffered significant impacts due to the new regulations. According to a post on WeChat by Xinhua News Agency, which cited an industry association, Monday’s approvals demonstrate China’s support for the development of online games.

Also read: Meta’s strategic partnership with Tencent opens new horizons for VR in China

New regulations and market impact

The National Press and Publication Administration (NPPA), China’s top gaming regulatory body, had introduced new rules last Friday limiting the development of online games. These rules, which included unspecified spending caps for adult players, reignited concerns among Chinese officials about a new round of “technical crackdowns”.

Additional restrictions included bans on rewards for frequent logins and forcing player duels, and content that breaches national security. Following the announcement, Tencent and NetEase saw their market values in Hong Kong plummet by billions of dollars. The NPPA’s decision to approve 40 imported games during trading hours, including titles operated by the two companies, failed to restore investor confidence.

Also read: $20 billion in 10 years: How did MiHoYo’s become one of China’s biggest gaming companies?

Analysts’ perspectives and government response

Analysts, including those from Citi, expressed shortly after the new measures that Tencent and NetEase were unlikely to be significantly affected. However, this did not prevent a steep fall in the stocks of both companies in U.S. trading.

The government, on Saturday, announced its intention to listen to feedback from stakeholders, including companies and players, to refine the rules. The comprehensive restrictions caught industry participants and investors off guard on the last trading day before Christmas, reminiscent of the sudden clampdown on the internet sector in 2021. That year saw abrupt restrictions across various domains, from e-commerce to entertainment.

“While managing the gaming industry, a scenario where ‘a hundred flowers bloom’ in games should emerge swiftly, bidding farewell to the old model of ‘three parts development, seven parts operations’, and entering a new race in gaming that competes in creativity and technology.”

Zhang Shule, Game industry analyst. (Translate from Chinese.)

Industry insights and future outlook

Yang Wenfeng (phonetic transcription), Senior Vice President of Shanghai-based game studio Paper Games, reflected on the latest events: “The recent developments reflect the government’s desire for a larger, more diversified gaming landscape with higher quality and innovative content, without excessive monetization or ‘pay-to-win’ schemes.” Yang added, “The government prefers publishers to earn profits through fair practices and product innovation, rather than deepening monetization strategies.”This shift in China’s gaming policy appears to be an attempt to balance regulatory control with industry growth, indicating a potential new phase for the gaming sector in China.

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