Tencent sheds $56 billion as China unveils latest gaming curbs

Hong Kong - China unveiled a raft of new measures to rein in spending on online games, signalling the start of another industry crackdown that wiped out roughly US$42 billion (S$55.8 billion) of Tencent Holdings’ value.

Beijing’s top gaming regulator on Dec 22 published draft rules broadly designed to clamp down on practices that encourage players to spend more money and time online. Among other things, they include a ban on rewards for frequent log-ins, forced player duels and a vague prohibition on any content deemed to violate state secrets.

The sweeping restrictions, which likely surprised industry players and investors, suggest Beijing is getting ready to launch another crackdown on the world’s largest mobile gaming arena.

Tencent slid as much as 16 per cent – its biggest intraday fall since 2008 – before closing down 12.4 per cent. Its smaller rival NetEase dived 28 per cent before it ended down 24.6 per cent. Nexon, which derives a chunk of its revenue from China, fell 11.9 per cent. Bilibili, a social media service popular with gamers, fell 9.7 per cent.

The government now wants to set a cap on how much money each player can spend within a title, according to the draft.

The regulations also ask that game publishers operating abroad respect Chinese laws and culture and refrain from endangering national security, without elaborating. Tencent is the world’s largest gaming publisher, with investments in studios from Epic Games in the United States to Supercell in Europe. The agency will take feedback on the proposed rules for a month, without saying when they take effect.

“This will deal a blow to the overwhelming majority of games in China, except those that sell copies. Companies will need to overhaul their monetisation models, including how they charge money from different tiers of players,” said Niko Partners vice-president Zeng Xiaofeng.

President Xi Jinping’s administration has sought to combat gaming addiction, blaming online entertainment for the rise of myopia among youth. Critics have also linked its rise to various ills, from unemployment to low birth rates. At the height of the tech sector crackdown, the government froze approvals for new titles and launched several probes into content, forcing developers including Tencent to modify certain games.

The latest rules emerged after Beijing in 2023 appeared to thaw on the sector. Officials in past months had encouraged e-sports, for instance, as an engine for the post-Covid-19 economy. Mr Xi himself attended the opening ceremony of the 19th Asian Games in Hangzhou, which featured professional gaming among the sports with medals up for grabs for the first time.

In December 2022, Tencent secured a green light for a clutch of major releases including Valorant and Pokemon Unite – a milestone that reinforced hopes of China easing its two-year crackdown on Big Tech. The WeChat operator is now locked in a fierce battle with NetEase as it rolls out casual title Dream Star in hopes of replenishing an ageing gaming portfolio. Both companies have poured advertising and other promotional costs into the so-called party royale genre, at a level unseen in recent years.

China’s gaming market was set to grow almost 14 per cent to 302.9 billion yuan (S$56.6 billion) in 2023, reversing a 10 per cent decline from the year before, according to data provider CNG.

Yet the Communist Party has, since 2020, waged a campaign against a private sector it regarded as amassing more power and expanding recklessly, an effort that managed to rein in once-dominant tech sector leaders such as Mr Jack Ma’s Ant Group and Alibaba Group Holding. The crackdown on gaming actually pre-dated that movement, with the first suspensions of game approvals starting around 2018. BLOOMBERG