Tencent, Netease Stocks Fall Amid New Chinese Gaming Regulations

Summary

  • The stock prices of Chinese online gaming companies Tencent and Netease plummeted on Friday following the introduction of new regulatory measures.
  • The National Press and Publication Administration (NPPA) of China announced limits on player spending for online games. The aim is to combat gaming and internet addiction among young people.
  • Despite signals that regulatory restrictions on Chinese internet giants would diminish, these new rules contrast the previous indications.
  • While the video gaming industry in China started to recover this year, the new regulations may impact its progress.
  • The new rules and their impact on market behaviours could potentially influence foreign exchange or trading dynamics.

Tencent and Netease Stocks Roiled by New Regulations

Tencent, the world’s predominant video game developer, and its smaller associate Netease witnessed a dramatic decrease in their share prices on Friday. This occurred as a consequence of Chinese authorities revealing new regulations aimed at restricting online gaming spending.

Impact on Stock Market

In the Hong Kong market, Tencent slumped by 7.2% while Netease suffered an over 12% decline. Both were among the primary drags on the index, pushing it down by 0.2%.

New Restrictions Rolled Out by NPPA

The NPPA, China’s official video game licenser and regulator, has announced that it will implement spending restrictions for online games. Game operators will be required to explicitly display these limits within their games.

Inductive Rewards and Crackdowns

Additional regulations by the NPPA will prohibit online gaming operators from offering misleading incentives, which can lead consumers to invest more time and money into these games. These initiatives continue the pattern of Chinese authorities cracking down on online gaming due to concerns over internet and gaming addiction among the country’s youth.

Economic Impact and Industry Recovery

Earlier signals hinted that China would relax its stringent restrictions against its internet behemoths in a bid to boost economic growth. The gaming industry also showed signs of recovery this year following a crackdown that began in 2021 and lasted over a year. This recovery, however, may well be stifled by the new restrictions.

Financial Performance of Tencent and Netease

Tencent and Netease’s revenue growth has been modest this year, primarily due to China’s lukewarm economic conditions. While Tencent saw some growth in gaming revenues in the third quarter, much of it came from international markets. Netease, which mainly focuses on online games, reported a 11.6% year-on-year increase in third-quarter revenue.

Implications on Forex and Trading

The regulatory changes in China’s gaming industry and the subsequent impact on Tencent and Netease could hold significant implications for forex and trading, potentially influencing the behavior of related assets.

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