Tencent sheds $54 billion as China unveils latest gaming curbs

Xi Jinping’s administration has sought to combat gaming addiction, blaming online entertainment for the rise of myopia among youths. Critics have also linked its rise to various ills from unemployment to low birth rates. At the height of the tech-sector crackdown, the government froze approvals for new titles and launched several investigations into content, forcing developers including Tencent to modify certain games.

“This will deal a blow to the overwhelming majority of games in China, except those that sell copies. Companies will need to overhaul their monetisation models, including how they charge money from different tiers of players,” said Zeng Xiaofeng, a vice president at Niko Partners.

The latest rules emerged after Beijing in 2023 appeared to thaw in the sector. Officials in past months had encouraged esports for instance as an engine for the post-Covid economy. Xi himself attended the opening ceremony of the 19th Asian Games in Hangzhou, which featured professional gaming among the medals up for grabs for the first time.

In December 2022, Tencent secured a green light for a clutch of major releases including Valorant and Pokémon Unite — a milestone that reinforced hopes China was easing its two-year crackdown on Big Tech. The WeChat operator is now locked in a fierce battle with NetEase as it rolls out the casual title Dream Star in hopes of replenishing an ageing gaming portfolio. Both companies have poured advertising and other promotional costs into the so-called party royale genre, at a level unseen in recent years.

China’s gaming market was set to grow almost 14% to 302.9 billion yuan ($42.4 billion) in 2023, reversing a 10% decline from the year before, according to data provider CNG.

Yet the Communist Party since 2020 has waged a campaign against a private sector it regarded as amassing more power and expanding recklessly, an effort that managed to rein in once-dominant tech sector leaders such as Jack Ma’s Ant Group Co. and Alibaba Group Holding Ltd. The crackdown on gaming actually pre-dated that movement, with the first suspensions of game approvals starting around 2018.

The government now wants to set a cap on how much money each player can spend within a title, according to the draft.

The regulations also asked that game publishers operating abroad respect Chinese laws and culture and refrain from endangering national security, without elaborating. Tencent is the world’s largest gaming publisher, with investments in studios from Epic Games Inc. in the US to Supercell in Europe. The agency will take feedback on the proposed rules for a month, without saying when they take effect.

“It’s hard to quantify the impact at this stage but the draft rules raise concerns over the gaming companies’ monetisation prospects,” said Daisy Li, a fund manager at EFG Asset Management HK Ltd. “With the rules, gaming players' behaviour could change and the company's daily active users could take a hit.”