Tencent And NetEase Surge After Chinese Regulator Pulls Draft Gaming Rules From Website

China’s gaming regulator has removed the draft rules from its website, which were proposed to limit spending and rewards that promote video game playing. This unexpected development has led to a surge in the shares of gaming companies.

What Happened: The National Press and Publication Administration (NPPA) of China removed the draft rules from its website, which were aimed at curbing excessive spending and rewards that encourage video game playing, as per a Reuters report on Tuesday.

The draft rules on the NPPA website became inaccessible as of Tuesday morning, despite being functional on Monday. The consultation period for these rules, initially causing market turmoil upon their announcement, concluded on Monday.

The removal of the rules sparked speculation among analysts, hinting at a potential revision. The NPPA has not provided immediate comments on the removal. Xiaoyue Hu, an analyst at Haitong Securities suggested, “There might be further changes in the new measures.”

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Shares of major gaming companies like Tencent Holdings Ltd TCEHY and NetEase Inc NTES, listed in Hong Kong, saw a significant increase following this development. Tencent’s shares rose by up to 6%, and NetEase’s shares by 7% during morning trading on Tuesday.

The proposed rules, which included setting spending limits for online games, had initially caused panic among investors, resulting in a market value loss of nearly $80 billion for China’s two largest gaming companies.

Why It Matters: This reversal by the Chinese gaming regulator comes after a series of events that have significantly impacted the gaming industry in the country. The proposed rules, announced in December, had caused a market selloff of $80 billion, with Tencent alone losing $54 billion in market value. This led to a response from Tencent, which stated that it did not anticipate fundamental changes to its business model or operations for games.

Following the proposed regulations, a number of smaller Chinese gaming companies announced plans to buy back shares to reassure investors. This move was aimed at addressing investor concerns following the draft rules announced by Chinese regulators. The removal of the draft rules from the NPPA’s website suggests a possible shift in the regulatory landscape, which could have a significant impact on the future of the gaming industry in China.

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China online gaming. Photo via Shutterstock