The shares of the Chinese NetEase Inc. and Tencent Holdings Inc. fell sharply on Friday after authorities announced draft rules to tackle spending and rewards in online gaming.
In a statement, China’s National Press and Publication Administration, China’s top gambling regulator, proposed restrictions on consumers’ excessive spending on games, banning rewards for multiple logins and pop-up lines that would warn users against overspending on such games.
The draft rules also stated that game content should be prohibited from leaking “state secrets.” The rules are open for public comment until January 22, 2024.
Shares of NetEase NTES,
+2.30%
9999,
-25.53%
fell by 22% and Tencent 700,
-12.54%
fell 12% in Hong Kong trading, weighing on the Hong Kong Hang Seng Index HK:HSI,
down 1%. Tencent is the parent company of Tencent Music Entertainment Group TME,
+3.38%.
The news comes as a blow to Chinese stocks, which are among the worst performers in Asia and globally in 2023, with the Hang Seng down 16% and on track for its fourth straight losing year.
China previously cracked down on the gaming industry, with concerns focused on addiction and vision problems among young people. In 2018, limits on new video game releases were announced, alongside restrictions on playing times for young people.
In 2021, Tencent and other stocks came under pressure after an official called online gaming “spiritual opium,” which harms the minds of minors, and suspended licenses for new games. The freeze on new games was later lifted for Tencent and NetEase in 2022.
S&P Global Ratings noted earlier in May that China’s regulatory restrictions on the internet sector had eased over the past year, but analysts warned they expected “more regulatory action well into the foreseeable future, especially in the areas of data security and content moderation.”
“But the scope for surprises should be significantly reduced and they should not result in significant operational challenges, as happened in 2021,” S&P said.
