China's Gaming Companies Lose Billions as Government Looks to Restrict Gaming Spend

Chinese regulators introduced stringent rules to curb in-game spending and rewards in online games on 22nd December. This latest development has erased nearly $80 Billion USD in market value from China's largest gaming companies, Tencent Holdings and NetEase, which command the lion’s share of the country’s gamers.

These sudden restrictions are eerily similar to the tech-sector crackdown of 2021 which wiped out more than $1 Trillion in value according to Refinitiv data. That year, curbs were imposed on various companies including the likes of Jack Ma-backed Ant Group Co. and Alibaba Group Holding Ltd.

National Press and Publication Administration (NPPA)’s New Rules For Chinese Gamers

According to the new rules drafted by the National Press and Publication Administration, online games must eliminate rewards that drive players toward excessive gameplay and spending. This includes the widely used mechanisms of daily login incentives and rewards for adding funds to game accounts. 

The NPPA has also mandated that all video games institute a cap on the amount players can add to their accounts. Furthermore, the regulations require games to issue alerts to users exhibiting “irrational consumption behavior” through pop-up warnings, a measure aimed at fostering more responsible gaming habits. It also adds that video game operators will be required to meet multiple requirements including content moderation and users’ real-name verification.

The announcement led to a steep decline in the shares of industry leaders. Tencent, the world's largest gaming company, and its close competitor NetEase saw their shares plummet by 16% and 25%, respectively. Additionally, Shanghai-based Bilibili Inc., best known for its video sharing service popular among Chinese gamers, also felt the market's reaction.

China's strict approach to regulating the gaming industry has evolved over the years. In 2021, the government imposed severe playtime restrictions on minors and temporarily halted new game approvals, citing concerns over gaming addiction. While the approval process resumed in 2022, the government has maintained its firm stance on in-game spending.

However, at the time of writing, Chinese regulators appear to have removed the controversial draft rule aimed at the online gaming industry from the public feedback platform. However, despite the removal of the draft, the link to the NPPA website introducing the new rule remains active. 

This development, first reported by Josh Ye, adds another layer of complexity and uncertainty to a situation that has already sent tremors through the gaming sector and the stock market.