The proposed regulation immediately prompted investors to dump shares in major Chinese video gaming stocks. Tencent Holdings, the world’s largest video gaming company by revenue. saw its shares fall nearly 15 per cent on Friday’s trading session in Hong Kong, while NetEase dropped more than 20 per cent.
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The resurrection of China’s video gaming industry
The resurrection of China’s video gaming industry
The NPPA, which has also directed video game operators to meet a range of requirements covering content moderation and users’ real-name verification, is seeking public comments on the draft rules until January 22.
The draft regulation marks the first time the Chinese government is specifically targeting the gaming industry since Beijing tightened its scrutiny of the sector in late 2021 amid a wide technology sector crackdown.
China’s Ministry of Culture and Tourism previously issued a regulation for the gaming industry in 2010, but the measures were abolished in 2019. The new regulation stated that NPPA will be responsible for supervising China’s gaming activities.
Cui Chenyu, a senior analyst at research firm Omdia, said the new regulation signals that “the gaming industry is still under a strict regulatory environment despite the normalization of new game approvals”, as it has made a comprehensive set of rules on how the video games could sell themselves to consumers with all age groups, not only just to people under 18.
“The first thing to look at is the ban on many top up functions within the games. It has put a limit on a major way of marketing,” said Cui, adding that it will especially have an impact on the revenue streams of recent new games in the genres of “role-playing games and hyper-casual games”.
Meanwhile, the fate of domestic gaming companies will depend on how the draft is finalized and enacted.
“The draft does not have a specified rule on the number of times or the amount of money allowed for user recharging. The whole industry will keep an eye on this,” said Cui from Omdia.
China’s video game industry revenue increased 14 per cent this year to 303 billion yuan (US$42.7 billion), the highest yearly sales since the data became available in 2003, according to a report released earlier this month by the Game Publishing Committee of the China Audio-Video and Digital Publishing Association.
The strong growth came on the heels of a slump in 2022, when China’s total gaming industry revenue declined 10.3 per cent year on year thanks to economic headwinds, slower user growth and regulatory scrutiny.
The NPPA, in charge of licensing video games in the country, in late 2021 stopped approving new games for months before resuming a normal pace of granting new licences this year.
Tencent, the world’s largest video game company by revenue, reported an 11 per cent jump in sales for the first three quarters this year, driven by growth in advertising and game sales, while rival NetEase’s revenue increased 7 per cent in the same period.