In an unexpected move right before Christmas, China’s top gaming regulator introduced new draft rules aimed at controlling excessive spending and online gaming usage. This announcement led to an $80 billion market selloff spearheaded by $54 billion in Hong Kong-listed Tencent Holdings Ltd. TCEHY.
What Happened: The new regulations, introduced on Thursday, caught the industry off-guard on the final trading day before the holiday season, Bloomberg reported. The abrupt clampdown ignited fears of a reinvigorated crackdown on China’s gigantic internet sector, similar to the stringent tech-sector clampdown of 2021.
The newly introduced regulations comprise spending limits on in-game purchases, bans on rewards for frequent log-ins, and prohibition of any content that compromises national security. The broad and vague nature of these measures left investors and industry players struggling to anticipate potential implications.
With the introduction of these new regulations, Tencent experienced its largest intraday dip since 2008, slipping up to 16%. Other major firms, such as NetEase Inc. NTES and Bilibili Inc. BILI, also experienced record drops, contributing to an $80 billion decrease in market value.
Why It Matters: The Chinese government has been waging a campaign against the private sector since 2020, perceiving it to be gaining too much power and expanding in a reckless manner. This latest gaming restriction is viewed as an extension of that campaign. The government-initiated crackdown on gaming started around 2018 with the suspension of game approvals. The Chinese government attributes various social issues, such as youth myopia and declining birth rates, to online entertainment.
The new measures could force gaming companies to rethink their monetization strategies, potentially impacting their revenue and profits. The regulations could have far-reaching implications for the gaming industry, both domestically and internationally, as companies scramble to adapt to the changes.
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