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China announces rules to reduce spending on video games

Game for Peace", Tencent's alternative to the blockbuster video game "PlayerUnknown's Battlegrounds" (PUBG) in China, is seen on a mobile phone in this illustration picture taken May 13, 2019. REUTERS/Florence Lo/Illustration
Game for Peace", Tencent's alternative to the blockbuster video game "PlayerUnknown's Battlegrounds" (PUBG) in China, is seen on a mobile phone in this illustration picture taken May 13, 2019. REUTERS/Florence Lo/Illustration

China announces rules to reduce spending on video games. On Friday, Chinese authorities announced various measures to reduce spending and prizes that encourage video games. This decision dealt a blow to the most significant games market in the world, which has returned to growth this year.

The new regulations, which would essentially establish spending limitations for online games, caused investors to experience a state of fear. As a result, the market value of China’s two biggest gaming companies decreased by about $80 billion. This occurred as investors attempted to evaluate the prospective impact on earnings and the impending implementation of more restrictions.

From now on, online games will no longer be able to provide players with prizes if they check in daily, spend money on the game for the first time, or spend money on it several times in a row. In online games, all of these are examples of standard incentive systems.

Tencent Holdings (0700. H.K.), the largest gaming firm in the world, had its share price drop by as much as 16% at one time. In contrast, the share price of its nearest competitor, NetEase (9999.  H.K.), dropped by as much as 25% after the National Press and Publication Administration released the new draft guidelines.

The shares of the technology investor Prosus (PRX.AS) followed Tencent’s downward trend, falling 14.2% in early trading on Friday. These shares were among the most significant decliners on the pan-European stock index (.STOXX index). Prosus owns twenty-six percent of Tencent.

It is not necessarily the legislation itself that is the problem; instead, it is the policy risk that is excessively high, as Steven Leung, the executive director of institutional sales at the broker UOB Kay Hian in Hong Kong, said. Several individuals believed that this type of risk needed to have been eliminated, and they began to reconsider the principles once again. The loss of confidence is significant.

After being questioned about the implications of the draft guidelines, Vigo Zhang, vice president of Tencent Games, stated that the firm would not be required to make significant adjustments to “its reasonable business model or operations” for games. He also mentioned that the company has consistently adhered to legal standards.

Zhang went on to say that since 2021, when Beijing began to place a greater emphasis on the protection of minors, the amount of money and time that minors spent on Tencent’s games had been at an abnormally low level.

NetEase refused to comment. Over the years, Beijing has gotten increasingly rigid about video gaming. The Chinese government, claiming fears about gaming addiction, imposed stringent playing limitations for children under the age of 18 in 2021 and froze approvals of new video games for almost eight months.

Even though the crackdown was officially terminated in the previous year with the restart of the clearance process for new games, authorities have continued to enforce limits to curtail “in-game” spending.

On Friday, new regulations were disclosed, and they are the most clear laws yet intended to limit spending within the game. It is necessary that games, in addition to prohibiting reward elements, also place restrictions on the amount of money that players may add to their digital wallets to make purchases within the game.

“The removal of these incentives is likely to reduce daily active users and in-app revenue, and could eventually force publishers to fundamentally overhaul their game design and monetisation strategies,” said Ivan Su, a Morningstar analyst at the company.

In addition, games are prohibited from allowing minors to participate in probability-based fortunate draw elements and from facilitating the speculating and auctioning of virtual gaming objects.

On the other hand, the new regulations featured a proposal primarily anticipated to be well-received by the industry. This plan will require regulators to approve game approvals within sixty days.

While this was happening, Chinese officials stated on the same day that they would be granting licenses for forty new imported games for domestic distribution. This signaled that Beijing is prepared to allow additional games within the nation despite the draft limits on game expenditure.

Additionally, Beijing’s worries around user data are reflected in the new guidelines, which mandate that game producers install their servers within the borders of China.

Through January 22, 2024, the government is looking for feedback from the general public about the rules.

2022 was the most challenging year in the history of the Chinese gaming industry. This was because thedown on gaming in 2021 caused the s, whichector’s overall income to decrease for the first time.

CGIGC, an industry group, said that the domestic revenue of the video game market in China increased by 13% to 303 billion yuan ($42.6 billion) this year, indicating that the business has resumed its development trajectory.

The strict draft legislation also had a negative impact on gaming stocks globally. In the United States, gaming stocks such as Roblox (RBLX.N), Electronic Arts (EA.O), and Unity Software (U.N.) had a decline of between 1.7% and 3.1% on Friday. Meanwhile, in Europe, the French video games company Ubisoft (UBIP.PA) experienced a decline of around 3%.

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