China’s new rules to reduce spending on video games create panic among investors, wipes off $80 billion

  • The decision is termed a major setback to the world's biggest games market, which was still recovering from the brunt of the Covid-19 impact

Livemint
First Published23 Dec 2023, 12:42 AM IST
China released draft guidelines aimed at curbing excessive spending on online gaming in the latest move by the ruling Communist Party to keep control of the virtual economy
China released draft guidelines aimed at curbing excessive spending on online gaming in the latest move by the ruling Communist Party to keep control of the virtual economy(AP)

China on Friday came out with strict regulations aimed at curbing spending and rewards that encourage video games. The decision is termed a major setback to the world's biggest games market, which was still recovering from the brunt of the Covid-19 impact. As the word spread, panic was visible among investors, and as per a Reuters report, nearly $80 billion was wiped off from the market value of from China's two biggest gaming companies.

The government of China has decided to prohibit online games from bestowing rewards upon players for routine daily logins, inaugural financial transactions within the game, and successive instances of spending. These particular reward mechanisms, which have become widely employed in the domain of online gaming, are now subject to restrictions aimed at fostering a more balanced and equitable gaming environment.

"It's not necessarily the regulation itself - it's the policy risk that's too high," said Steven Leung, executive director of institutional sales at broker UOB Kay Hian in Hong Kong. "People had thought this kind of risk should have been over and had started to look at fundamentals again. It hurts confidence a lot."

Tencent shares plunge 16%

The decision to impose restrictions on video games didn't go well with the investors as the shares of gaming companies witnessed a deep dive. The scrips of the world's biggest gaming company, Tencent Holdings plunged 16% and similar was the case with NetEase as its shares were trading 25% down on Friday.

Tencent management, however, kept the optimistic tone around the new regulations with its vice president Vigo Zhang saying the company “will not need to fundamentally change its reasonable business model or operations for games.” 

Battle gaming addiction 

Over the years, Beijing has adopted a progressively stringent stance toward video games. In 2021, China implemented stringent time restrictions for individuals under the age of 18, and there was an approximately eight-month suspension of approvals for new video games, attributing these measures to concerns related to gaming addiction.

While the formal crackdown concluded last year with the resumption of new game approvals, regulatory authorities have persisted in imposing limitations to mitigate excessive "in-game" expenditures.

(With inputs from Reuters)

 

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First Published:23 Dec 2023, 12:42 AM IST
HomeNewsworldChina’s new rules to reduce spending on video games create panic among investors, wipes off $80 billion

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