Tencent Responds To China's Crackdown On Video Gaming, Doesn't Anticipate Changes

China's top gaming regulator unveiled surprise draft rules targeting overspending and excessive online gaming during the Christmas period.

What Happened: New rules will impose spending limits on in-game purchases, forbid rewards for frequent log-ins, and ban content affecting national security.

In response to inquiries regarding the potential impact of the draft rules, Vigo Zhang, the vice president of Tencent Holdings Ltd. TCEHY, affirmed that Tencent does not anticipate the necessity for "fundamental changes to its reasonable business model or operations" for games, Reuters reported.

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Zhang further highlighted the company's strict adherence to regulatory requirements, emphasizing their consistent implementation.

Moreover, Zhang noted a notable decline in spending and time allocation by minors on Tencent's games since 2021, aligning with Beijing's increased focus on safeguarding minors.

In dialogue with Reuters, Daniel Ahmad from Niko Partners highlighted China's ongoing trend of revising video game industry policies, with new draft regulations consolidating existing rules and introducing amendments. These regulations could impact player spending, especially if a spending cap is set too low. Publishers are expected to seek revisions, and while bans on certain incentives pose challenges, alternatives are being explored.

The regulations mainly target in-game purchases, constituting a significant portion of China's gaming revenue, yet they are unlikely to affect Chinese games in international markets, Ahmad assured.

Why It Matters: The unexpected announcement triggered an $80 billion market slump, primarily driven by Tencent's $54 billion drop in Hong Kong.

The implementation of new regulations led to Tencent encountering its most substantial intraday decline since 2008, plummeting by 16%.

Concurrently, other key firms like NetEase Inc. and Bilibili Inc. also faced significant downturns.

"On a positive note, the introduction of a 60-day approval requirement should lead to an increase in licenses issued during 2024," a Niko Partners analyst said. "While 2023 was a positive year for video game approvals, the industry is still impacted by long game approval times and was also recovering from a temporary game license approval freeze initiated in 2021."

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Image credits: Sergei Elagin on Shutterstock.