Shares Plunge as Chinese Authorities Announce New Rules for Online Gaming Spending and Rewards
NetEase Inc. shares fell 24% while Tencent Holdings Inc. saw a 12% drop in Hong Kong trading
NetEase Inc. and Tencent Holdings Inc. faced a sharp decline in shares on Friday following the announcement of draft rules by Chinese authorities, aiming to crackdown on spending and rewards associated with online gaming.
According to a statement from China’s National Press and Publication Administration, the proposed measures include curbs on excessive game spending by consumers and bans on rewards from multiple logins and pop-up rules, cautioning users against overspending on these games. The draft rules are open for public comment until January 22, 2024.
Furthermore, the rules also prohibit game content from leaking “state secrets”, aiming to regulate the gaming industry more effectively.
These developments have had a significant impact on NetEase and Tencent shares, with a 24% tumble for NetEase (
NTES,
+2.30%
) and a 12% fall for Tencent (
700,
-12.35%
) in Hong Kong trading, further affecting the Hang Seng Index, which was down 1.7%.
Gianmarco Bonacina, an analyst at Equita, highlighted the significant impact of gaming on NetEase and Tencent’s revenue, with gaming representing about 70% of NetEase’s revenue and about 30% for Tencent. These regulatory risks have led to a negative market reaction and downward projections for these companies.
With China’s shares being some of the worst performers in Asia and globally in 2023, these latest rules contribute to the downward trajectory of the Hang Seng index, which has been down 16%, indicating its fourth consecutive annual loss.
China has previously been proactive in imposing restrictions on the gaming industry, primarily aimed at dealing with youth addiction and vision problems. Regulatory actions in the past have limited new videogame releases and placed restrictions on playing times for young people.
In light of these recent developments, S&P Global Ratings emphasized the increasingly uncertain regulatory landscape but indicated more stability compared to previous years, with less likelihood of significant operational challenges for companies compared to the regulatory surprises of 2021.
