Tencent rocked by new Chinese online gaming restrictions

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Shares in China’s biggest online gaming companies were headed for record losses on Friday after Beijing fired a volley of new measures to tighten control over the industry.

In a set of proposed guidelines, the National Press and Publication Administration, China’s gaming regulator, said it would curb excessive consumption and high-priced features on games, as well as require publishers to issue more warnings to users.

Tencent, China’s biggest company by market capitalisation, tumbled as much as 15.7 per cent following the announcement and was on track for its sharpest one-day drop on record even after paring losses to about 14 per cent.

Shares in rival NetEase were down more than 20 per cent in Hong Kong, setting up the company’s US listing for the steepest daily fall since its Wall Street debut in 2010.

Those falls helped drag Hong Kong’s Hang Seng Tech index of large Chinese tech stocks down 3.6 per cent on the day, bringing year-to-date losses to more than 13 per cent.

“This was supposed to be a quiet day before Christmas and now you’ve got big, big [trading] volumes going through,” said the trading desk head at one investment bank in Hong Kong. “I haven’t seen moves like this in these names before.”

China’s online gaming industry is the biggest in the world with around 650mn users and annual revenues of $45bn last year, according to Goldman Sachs.

“Everybody is shocked [by the proposed regulations],” said Chenyu Cui, a Shanghai-based analyst with Omdia, a technology research group.

China’s regulators have typically focused on restricting the exposure of Chinese children to online gaming, but Friday’s announcement marked a significant new effort to curb adult spending, she added.

Goldman Sachs analysts noted earlier this year that Chinese gaming developers have “centred their attention” on revenue generation from in-game micro-transactions. These features, the bank’s analysts said, held greater revenue growth potential than traditional games played on consoles or personal computers, where there has been a struggle to raise the prices of titles.

Cui also said that a core marketing focus of many gaming groups has been promotions to reward consumers for consecutive days of play and account top-ups, features which appear to have been directly targeted by the regulator.

The gaming platforms have been squarely in Beijing’s crosshairs since 2021, as part of President Xi Jinping’s sweeping “common prosperity” campaign to reform social values in China and bring the country’s tech giants more firmly under Communist party control.

At the height of the crackdown, Chinese state media labelled gaming as “spiritual opium” and regulators halted approval of new gaming titles for nearly a year. Chinese children were also banned from playing video games for more three hours a week, a measure that was difficult to police.

Since April 2022, however, Beijing has resumed the approvals process for new online games, part of a broader reprieve for tech companies amid slowing economic growth in China.

Additional reporting by Nian Liu in Beijing