Tech stocks are collapsing
China deals a hard blow to online gaming industry
December 22, 2023, 11:15 a.m
Online games have long been a thorn in the side of the Chinese government. A government draft now wants to more strictly regulate how users spend money in online games. Tech stocks are then coming under a lot of pressure on the stock market – gaming giant Tencent is also collapsing.
China is stepping up its crackdown on the huge online gaming industry. Regulators have announced a wide range of rules aimed at curbing incentives to play video games. The shares of the gaming giant Tencent and its competitor Netease then made a name for themselves on the Hong Kong stock exchange with a price loss of almost 15 and 25 percent respectively. The sub-index of technology stocks fell by more than 4 percent.
Tencent is one of the largest gaming providers in China. The stock is currently on track to have its worst day since October 2008, the height of the global financial crisis, according to CNN Money. According to CNN calculations based on stock market statistics, Tencent could lose $49 billion in value as a result of this decline. Netease is in danger of posting its biggest daily loss since its initial listing in June 2020. This decline could reduce the company’s market value by almost $14 billion.
The draft from Beijing wants to limit incentives to continue playing and spending money, and minors should no longer be allowed to pay money to live streamers. In addition, players should only be allowed to register with their real names. So-called in-game purchases have now become ubiquitous in the gaming industry and have become extremely lucrative for providers. They are intended to keep players engaged and encourage them to spend as much money as possible.
“This will deal a blow to the overwhelming majority of games in China, except for those that sell copies. Companies will have to overhaul their monetization models, including how they charge money from different groups of players,” Bloomberg quoted. Zeng Xiaofeng, vice president at Asian gaming market analysis firm Niko Partners. According to the British financial services provider CMC Markets, some experts in China also see computer games as the cause of numerous other problems, such as high unemployment among young people and low birth rates.
According to data provider CNG, the Chinese gaming market will grow by almost 14 percent to $302.9 billion by 2023, offsetting a 10 percent decline from the previous year. With the new rules, many of the companies’ revenue models – such as Tencent – will no longer work in their current form. “It’s hard to quantify the impact at this point, but the draft rules raise concerns about gaming companies’ monetization prospects,” Daisy Li, fund manager at EFG Asset Management HK Ltd, told Bloomberg. “With the rules, player behavior could change and the companies’ daily active users could suffer a setback.”