China’s New Gaming Regulations
In a recent move targeting the technology and gaming sectors, Chinese regulators have announced a comprehensive set of rules designed to rein in the gaming industry.
China is set to introduce new regulations that restrict the duration and amount spent on video games. These regulations prohibit incentives for frequent log-ins, in-game purchases, and compulsive playing behavior.
The announcement triggered widespread concern among investors and had a significant impact on the stock market. The share prices of two major gaming giants plummeted, eradicating almost $80 billion in market value.
China’s Previous Crackdown on the Gaming Industry
Previously, in 2021, China set strict playtime limits and rules for minors and suspended approvals of new video games for about eight months. The National Press and Publication Administration (NPPA), which is responsible for licensing video games in the country, cited gaming addiction concerns behind the regulations.
Reports varied on the specifics of the 2021 regulations, with some stating that children were limited to three hours of game time per week, requiring age verification through identification. Others indicated a ruling that restricted online gaming for individuals under 18 to one hour on Fridays, weekends, and holidays.
What Is China Restricting?
The recently proposed draft legislation sheds light on additional measures, compelling gaming companies to establish limits on players’ digital wallet top-ups for in-game purchases. Furthermore, it prohibits online games from providing rewards designed to extend gameplay, such as incentives for daily log-ins and additional account funding.
The legislation also explicitly bans games featuring probability-based lucky draw mechanisms for minors and mandates the removal of features facilitating speculation and the auction of virtual gaming items. To enhance user awareness, gaming companies are required to implement pop-ups warning users about irrational playing behavior and reduce the amount of tips players receive when streaming their games.
The Ripple Effect
The recent regulatory ruling had an immediate and substantial impact on major gaming companies, notably Tencent, a global gaming giant. Tencent experienced a sharp decline in its share price, dropping by 12.4%. This company holds a significant stake in prominent gaming firms worldwide, including Riot Games in the United States and Krafton in South Korea.
The announcement triggered a ripple effect across the gaming industry, affecting related stocks. NetEase, a Chinese gaming company and a key rival to Tencent, witnessed a significant 24% decrease in its share price.
The broader market, represented by Hong Kong’s Hang Seng Index, reflected the turmoil, dropping over 4% at a certain point and concluding the trading day with a 1.7% decline.
Will Gaming Companies Change Their Model?
According to gaming consultant Daniel Camilo, both Tencent and NetEase rely on a business model that involves several free-to-play games, known as “pay-to-win.” In pay-to-win games, players gain a competitive advantage by spending money on in-game items or upgrades. These games often start as free-to-play, making them initially attractive to players.
Camilo highlighted that these games actively encourage players to invest money, and the proposed restrictions could significantly impact such monetization models, necessitating their adjustment. He expressed concern that some of these games might even need to be removed from digital storefronts.
Furthermore, Camilo emphasized the potential consequences for smaller gaming companies, stating that if a small company is affected financially, it could lead to their closure.
RR Author
Real Research News is the media platform that presents insights and studies of wide-range of topics. It focuses on insights gathered from its survey app.
