Chinese gaming company Tencent lost value last Friday following new government decisions.
Tencent, the Chinese gaming company, suffered a loss of value last Friday following new government decisions.
Tencent and NetEase, two of China’s leading gaming companies, took a significant hit after the Chinese government announced new regulations aimed at limiting spending on online games. The draft rules announced by China’s National Press and Publication Administration outlined restrictions on certain applications used by online games.
Tencent shares fell by 16%, which translates to a loss of close to $80 billion!
According to Reuters, the proposed rules would prohibit games from rewarding players for daily logins, initial spending on a game or consecutive spending. There would also be limits on the amount of money players can deposit into their in-game digital wallets.
While these rules are still in draft stage and subject to possible amendments, they are not expected to come into force until next year. However, the mere announcement of these regulations triggered a significant market reaction.
Tencent, recognized as the world’s largest gaming company, saw a staggering 16% drop in its shares, while NetEase suffered an even more significant decline, falling 25% at its lowest point. The impact on market values reflects shareholder concern about the potential consequences of these regulatory measures on the revenues and user engagement of these gaming giants.
A giant in China’s tech arena, the company is not just ‘the one that has it all’ but also a driving force in technology
Morningstar analyst Ivan Su expressed concern about the removal of incentives, noting that it could lead to a decrease in the number of daily active users and in-app revenues. He also suggested that such regulatory changes could force game publishers to make drastic overhauls to their game designs and monetization strategies.
The move comes after China introduced strict playing time limits for minors in 2021 and temporarily suspended new game approvals amid concerns over gaming addiction. While new game approvals resumed last year, recently published rules include a provision requiring regulators to process approvals within 60 days.
