In a significant move, Chinese regulators have announced a comprehensive set of rules designed to curb spending and rewards that incentivize video game usage, impacting the world’s largest gaming market, which recently witnessed a resurgence in growth. These regulations, aiming to establish spending limits for online games, have sent shockwaves through the industry, resulting in an approximate $80 billion loss in market value for China’s top two gaming companies, Tencent Holdings and NetEase.
The new rules prohibit online games from offering rewards for daily logins, initial spending, or consecutive spending on the game—common incentive mechanisms in the gaming industry. Tencent’s shares plummeted by as much as 16%, while NetEase experienced a sharp decline of up to 25% following the announcement. Investors reacted anxiously, concerned about the potential impact on earnings and the prospect of additional restrictions in the future. Prosus, which owns a 26% stake in Tencent, saw its shares drop by 14.2%.
The regulations highlight Beijing’s growing strictness toward video games, building on previous measures such as playtime limits for minors and a suspension of new game approvals in 2021. While the formal crackdown concluded last year, ongoing restrictions target in-game spending.
Apart from banning reward features, the rules mandate that games set limits on digital wallet top-ups for in-game spending. Games are also prohibited from offering probability-based lucky draw features to minors and enabling the speculation and auction of virtual gaming items.
Notably, the rules include a proposal that could be welcomed by the industry—requiring regulators to process game approvals within 60 days. Simultaneously, on the same day, Chinese regulators announced licenses for 40 new imported games for domestic releases, signaling an openness to allowing more games in the country.
The rules also reflect Beijing’s emphasis on user data security, compelling game publishers to store their servers within China. The regulations are open for public comment until January 22, 2024.
The gaming industry in China faced unprecedented challenges in 2021 due to Beijing’s crackdown, but 2022 marked a return to growth, with domestic revenue increasing by 13% to $42.6 billion. However, the newly introduced rules are expected to impact daily active users and in-app revenue, potentially leading publishers to reevaluate game design and monetization strategies.
