The gaming industry in China encountered a seismic jolt as the National Press and Publication Administration released the draft of the “Network Game Management Measures” on December 22, soliciting public feedback.
These proposed regulations aimed to overhaul various facets of the gaming industry, spanning game modes, monetization methods, licensing, content guidelines, and strategies to curb addiction.
The market response was swift and punishing. During the afternoon session of December 22, the stock market witnessed a tumultuous downturn. Notably, major players like Tencent and NetEase faced a substantial plummet, with Tencent’s shares plunging by 12.35% and NetEase’s by a staggering 24.60%. The combined market value wiped out exceeded 450 billion yuan (approximately USD 63 billion) within a single day.
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Zhang Wei, Vice President of Gaming at Tencent, struck a note of cautious optimism amidst the chaos, indicating that the draft regulations wouldn’t fundamentally disrupt the gaming ecosystem. He emphasized that regulatory engagement with industry and societal feedback could potentially foster a more structured and healthy evolution of the gaming domain.
However, the market repercussions were far-reaching. Beyond giants like Tencent and NetEase, smaller companies in the A-share market, including Glacial Network, ZQGame, Baotong Technology, and Sino-i Technology, experienced significant declines. Sell-offs ensued swiftly, with institutions hastening to divest from these struggling stocks.
A recent report from People’s Daily highlighted the robust growth of China’s gaming industry in 2023. The sector achieved record-breaking sales revenue, surpassing 300 billion yuan for the first time, with a user base of 668 million and mobile gaming sales soaring by 17.51% year-on-year.
The potential impact of these regulations looms large over the industry. Daniel Camilo, a gaming consultant, emphasized concerns over the prevalent “pay-to-win” models in many games by Tencent and NetEase, stating that these monetization structures could be directly affected. He pointed out the necessity for restructuring and the potential removal of certain games from stores.
Despite this turbulence, Vigo Zhang from Tencent Games pledged strict adherence to any new regulatory requirements, acknowledging the ongoing focus on fostering reasonable business models and operating patterns. He highlighted the declining expenditure and time spent by minors on Tencent’s games since 2021, aligning with Beijing’s prioritization of safeguarding younger players.
The ramifications of these regulatory overhauls reverberated beyond the gaming sphere, causing fluctuations in Hong Kong’s Hang Seng Index, which saw a significant drop of more than 4% at one point.
One critical alteration proposed in the draft rules involves expediting the approval process for games within a 60-day timeframe. Additionally, game publishers would be mandated to house their data servers within China, a move aimed at controlling and safeguarding user data within the country’s borders.
As the gaming industry braces for potential restructuring and adaptation to comply with these impending regulations, the short-term repercussions have been dire, especially for smaller publishers. The uncertainty looms large, leaving stakeholders in anticipation of how these measures might reshape China’s gaming industry in the long run.