China Gaming Industry’s Response to Proposed Ban on Player Reward Incentives

Summary

  • Last Friday, draft rules aimed at prohibiting daily rewards and other forms of player incentives in online games were published. This resulted in a significant drop in the stocks of several gaming companies.
  • In response to this, the China gaming industry saw eight firms unveil plans for share repurchases up to a combined value of 780 million yuan ($110 million).
  • Despite initial fears, the National Press and Publication Administration indicated a potential reconsideration of the proposed regulations, suggesting continuous support for the development of online games in China.
  • Tencent Holdings and NetEase haven’t yet indicated their respective game plans following the news, following a market value loss of $80 billion combined.

China Draft Rules Impact Gaming Stocks

On the previous Friday, new draft rules were shared publically, suggesting the banning of online games offering player incentives such as daily login rewards or rewards for first-time or repeated game purchases. These incentives are traditionally common in the online gaming sphere.

Gaming Firms Respond to Stock Plunge

Following the news, shares in gaming companies took quite a hit. By Monday night, eight firms announced their strategy to repurchase shares equating to a potential 780 million yuan ($110 million), demonstrating confidence in China’s gaming market, and allegedly to safeguard investors’ interests.

China Softens Its Stance

The National Press and Publication Administration (“NPPA”), China’s video game regulator, suggested a possible softening of its stance. On the previous Saturday, it declared that after taking into account public opinion, the proposed rules would undergo further refinements.

Subsequently, on Monday, the NPPA approved new licenses for 105 local online games for December, an action that analysts mentioned as a “strong demonstration” of the authorities’ sustained support for online game development.

Buyback Plans Stability

The announced buyback plans had a stabilizing effect on stock prices. Shanghai-listed G-bits Network Technology Xiamen saw its shares increase marginally on Tuesday afternoon after a prior 13% loss. Shenzhen-listed Perfect World Co experienced a 2% drop following a 14% stumble.

Speculations Around Tencent and NetEase

The change in the gaming industry’s landscape has led to speculations around the future actions of Tencent Holdings and its closest rival, NetEase. The two companies lost a cumulative market value of $80 billion on Friday.

The unveiling of these draft rules reignited concerns about regulatory crackdowns on the gaming sector, which only recently got back on its feet after regulatory pressure in 2021 and 2022.

In influence to the forex industry, these changes within the gaming sector and the subsequent ripple effects could potentially impact assets associated with these companies.

(Exchange Rate: $1 = 7.1422 yuan)

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