Tencent, NetEase stocks rebound after Chinese regulator softens crackdown on online gaming

China’s Tencent Holdings saw its shares stage a recovery on December 27, the first day of trade, after authorities vowed to make improvements to proposed rules that had sent stocks in video game companies into sharp corrections.

Online gaming contributes over one-fifth of revenue for Tencent – a tech behemoth. The shares of Tencent jumped over 5 per cent in morning trade on December 27, after a 12 per cent tumble on December 22. Hong Kong markets were closed on December 25 and December 26 for public holidays.

Rival NetEase shot up 10 per cent compared with a 25 per cent plunge on December 22, also helped by local media reports since December 25 that it is again in talks to partner with World of Warcraft-maker Blizzard. The two companies abruptly parted ways a year ago.

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

Draft rules that curb spending and use rewards that encourage playing video games were published on December 22, raising concerns that regulators were once again cracking down heavily on the sector.

Contradicting its previous stance, China’s video game regulator – the National Press and Publication Administration, came up with a more conciliatory tone, saying it would improve the rules by “earnestly studying” public views. The development came soon after the dramatic tumbling of gaming stocks. It then approved new licenses for 105 domestic online games for December – more than the average month.

“We believe these fire-quenching measures may help to slightly ease market concerns, but they are not enough to remove the overhang caused by the draft regulation,” Nomura analysts wrote in a note to clients, according to a report by Reuters.

The industry has just started to regain its growth this year following the end of an extended clampdown in 2021 and 2022.

Earlier this month, Blizzard China, the company’s Chinese subsidiary, published a post, saying that it is in talks with publishing partners in China to continue the game’s service in the country.

The proposed regulations, currently open for public feedback until January 24, aim to prohibit online games from rewarding players for daily logins, initial in-game spending, or consecutive spending. These reward mechanisms are commonly employed in online games.

While the announcement caught the industry and investors by surprise, it aligns with the ongoing efforts of Chinese authorities to address issues such as myopia, internet addiction, and gaming addiction among the youth. In 2021, the government implemented a curfew for minor video game players, and in August, the cyberspace regulator in China recommended limiting smartphone usage to two hours a day for individuals under 18.

Mainland China’s gaming shares, predominantly representing smaller players in the industry, experienced modest gains. On Wednesday, the Anime Comic Game Index saw a marginal increase of 0.4%, rebounding from a 15% decline over the previous three sessions.

Several companies have recently announced share buybacks, interpreted as efforts to reassure investors. However, the impact of boosting share prices has been limited, at best.

(With Inputs from Reuters)

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