Shares of Chinese tech and gaming companies are plummeting after an unannounced package of measures was introduced.
The Chinese government announced a package of measures on Friday that will seriously affect the gaming industry. This places a limit on how much money players can spend in games. Rewards for those who log in daily or more often will no longer be handed out, as they will also be banned. With these measures, the Chinese government wants to ensure that players waste less time, but especially money, in the online world.
The regulations were introduced on Friday, without prior announcement. The Chinese gaming industry and investors reacted with surprise. As a result, the shares of Tencent, NetEase and BiliBili suddenly plunged. The revenue model of those companies is largely focused on the sale of skins and other in-game objects. Tencent is mainly known here for games such as Call of Duty: Mobile and PUBG Mobile, saw its shares fall by 16%. Direct competitor NetEase did slightly worse at 28%.
Fear more
It is clear that the new regulations will hurt the portfolio of Chinese gaming companies. The Chinese Communist Party has been targeting the tech industry for some time. The government believes that these companies have too much power. Since 2020, the country has been trying to reduce the power of tech companies. The gaming industry has also had to endure it for some time: in 2021, a law was signed allowing minors to only… three hours a week were allowed to game. There are therefore fears that more measures will be announced soon, he writes Bloomberg.
For gaming companies, the mood certainly continues. It is clear that there will be restrictions on how much players can spend, but no one knows exactly how high that amount is. The measures in the package can be interpreted broadly. This causes panic: no one can estimate the approximate extent of the eventual consequences.
Boosting the economy
First, the CCP made sure that minors could play games less. Now the government is also restricting the gaming behavior of adults. The reasoning behind this is that games are bad for your health. Games are blamed for all kinds of health ailments such as myopia, and are seen as a cause of the low birth rate in China.
But above all: gaming causes a lot of unemployment. China has long had high unemployment rates, especially among young people aged 16 to 24. The latest figures believe that 21.3% within that age group are unemployed. The new regulations therefore seem mainly intended to get young citizens out of their office chairs or couches and into work.
Freemium
The impact of the regulations is currently difficult to estimate, simply because they are formulated too vaguely. Undoubtedly, gaming companies feel their revenues from China are under threat. As a result, the existing ‘Freemium’ model could change. Many popular games use that model: the game itself is free, but you are strongly encouraged to spend money on in-game objects. However, the impact on that model can only be estimated when the measures take a clearer form.
