Shares of Chinese video game companies rallied on Wednesday after investors took a signal that the government was having second thoughts about proposed gaming regulations.
Regulators have been trying to calm the market since the weekend after the shares of the two biggest video game companies, Tencent and NetEase, plunged on Friday.
When trading resumed in Hong Kong after a four-day holiday, Tencent rose about 4% and NetEase rose 12%, recouping some of its losses.
The events of the past few days highlight the push and pull forces in China’s policy-making. The country’s top leaders acknowledged the need to stabilize the economy, which has been slow to recover from a de facto lockdown caused by the coronavirus pandemic. However, strict government control over companies’ business operations continues to create uncertainty in the market.
The National Press and Publication Administration of China, which issues licenses to game publishers and oversees the industry, on Friday announced proposals aimed at effectively reducing the amount people spend on games. The plan shocked the industry and investors sold tens of billions of dollars of company stock.
The regulator issued a statement on Saturday, stressing that the draft rules are aimed at “promoting the prosperity and healthy development of the industry,” adding, “We will listen to more voices comprehensively and improve regulations and provisions.” “There is,” he said.
And on Monday, the agency announced it had licensed about 100 new games, after licensing 40 others on Friday. A semi-official group affiliated with the agency also said the additional gaming approvals were a “positive signal” that the agency was supporting the industry.
The new regulations will limit the amount of money users can spend in-game on things like upgrading character features and purchasing virtual weapons and other things for characters to use. It would also ban rewards that companies use to encourage players to keep coming back. The proposal does not specify a spending limit.
“The draft regulations will inevitably lead to changes in current practices and the potential for short-term revenue losses,” said Xiao Lei, an assistant professor at the University of Hong Kong Business School.
However, he added that the impact may be smaller than feared as authorities may adjust or remove some of the provisions. Consumer demand for games and the social interactions they allow will not be affected, he added.
Analysts at Japanese bank Nomura said in a report on Tuesday that the rules could “significantly impair” Chinese video game companies’ ability to make money.
Nomura added that the “firefighting measures” launched by the government starting Friday will ease investor concerns, but cannot remove the shadow cast on China’s video game sector.
The industry is still reeling from regulations first imposed in 2019 targeting what the government deemed underage online gaming addiction, as well as a broader crackdown on tech companies. The regulator also hampered publishers by not issuing new game licenses for eight months until April 2022.
Tencent and Netease have downplayed the impact of the proposed regulations.
Viggo Zhang, executive vice president of Tencent Games, said in a statement on Friday that the draft rules “do not fundamentally change the business model, operating rhythm or other important elements of games.” NetEase said over the weekend that the proposal would not have a material impact on its business, adding that it would share its views with authorities.
The regulator said it would accept comments on the proposal until January 22.