China to implement stricter regulations on the video gaming sector

New rules are set to be implemented in China that will impose limits on the amount of time and money people can spend on video games. The aim of these restrictions is to curb excessive in-game purchases and prevent compulsive gaming behavior. This draft legislation comes as a blow to China's online gaming market, which is still recovering from a previous crackdown. The news of these new rules has had a significant impact on tech companies, with shares plummeting and billions of dollars being wiped off their value. The planned restrictions also reinforce a ban on forbidden online game content that threatens national unity or security, as well as the national reputation and interests of China. This is not the first time China has taken action against the gaming industry. In 2021, the government ruled that online gamers under the age of 18 could only play for a limited time on specified days. However, these new restrictions go further, stating that online games must not offer rewards that encourage excessive playing and spending, such as rewards for daily logins or topping up accounts with additional funds. Analysts predict that removing these incentives is likely to result in a decline in daily active users and in-app revenue, forcing game publishers to rethink their design and monetization strategies. Furthermore, the new rules will require pop-up warnings for users displaying irrational gaming behavior. China is the largest gaming market globally, with Tencent leading the sector in terms of revenue. Following the announcement of these restrictions, Tencent's share price plunged by 12.4%. Vigo Zhang, Tencent Games' vice president, assured that the company would strictly adhere to any new regulatory requirements. He mentioned that minors have already been spending significantly less time and money on Tencent's games since 2021 due to Beijing's focus on protecting younger players. NetEase, a rival company, saw its shares drop by over 24%, while Dutch tech investor Prosus suffered a loss of more than 14%. The performance of Prosus is closely linked to Tencent as it is their largest investment within a wide-ranging portfolio. These developments had a ripple effect on the Hang Seng Index in Hong Kong, which experienced a drastic drop of over 4% at one point, eventually closing 1.7% down. Gaming consultant Daniel Camilo expressed that both Tencent and NetEase heavily rely on "free to play" games that encourage players to spend money. The restrictions on these types of monetization models may require them to restructure their games, and some may even need to be removed from stores. However, Camilo believes that Tencent and NetEase will eventually recover, but smaller gaming companies may struggle and possibly face closure due to the financial impact of these rules. Beyond financial implications, the new regulations may also expedite the game approval process in China, requiring regulators to process applications within 60 days. Additionally, game publishers will be required to store user data on servers within China. The National Press and Publication Administration is seeking public comment on these proposals until January 22nd, after which further actions will be determined.