The new regulations will establish spending limits for online games and prohibit the provision of rewards to players for daily logins, initial spending, or consecutive spending in online games. These practices, commonly used as incentive mechanisms, will face restrictions. The announcement of these rules led to a significant market impact, with shares in Tencent Holdings, the world’s largest gaming company, falling by up to 16% and NetEase, its closest rival, experiencing a plunge of up to 25%.
Investors responded with concern, resulting in a collective loss of nearly $80 billion in market value from China’s two major gaming companies. The announcement prompted speculation about potential impacts on earnings and raised concerns about the possibility of additional restrictions in the future.
The new rules represent an explicit effort by Chinese authorities to curb in-game spending, requiring games to limit players’ digital wallet top-ups for in-game expenditures. Additionally, games are prohibited from offering probability-based lucky draw features to minors and engaging in the speculation and auction of virtual gaming items. Beijing’s concerns about user data are also reflected in the new rules, mandating game publishers to store their servers within China. The silver lining in the new set of rules is the proposal included, requiring regulators to process game approvals within a 60-day timeframe.
The move follows Beijing’s stringent approach to video games, including playtime limits for players under 18 in 2021 and the suspension of new game approvals for eight months due to concerns about gaming addiction.
While the game industry in China faced challenges in 2021, resulting in the first-ever decrease in total revenue, 2022 witnessed a return to growth. According to the China Game Industry Promotion Committee, domestic revenue in the video game market increased by 13% to reach $42.6 billion this year.
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