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China’s Online Gaming Sector Rebounds Amid Regulatory Reassessment

2023.12.27

 

Key Takeaways

  • Chinese gaming stocks rally following the regulatory body’s commitment to review contentious draft rules.
  • The proposed regulations aimed at curbing online gaming practices spark initial market turmoil, leading to significant losses.

Regulatory Reconsideration Boosts Gaming Stocks

Chinese online gaming stocks experienced a notable rebound on Wednesday, following the National Press and Publication Administration’s (NPPA) announcement to reassess its proposed regulations targeting online gaming. This development has provided a much-needed respite for major industry players like Tencent, NetEase, and Bilibili, which faced a significant drop in share value after the initial regulatory announcement.

Draft Guidelines and Market Impact

excessive online gaming and spending, including the prohibition of incentives like daily sign-ins. These proposals led to a steep decline in the Hong Kong-listed shares of Tencent, NetEase, and Bilibili. However, with the recent pledge to “carefully study” stakeholder concerns, particularly regarding Articles 17 and 18, the stocks have seen a considerable recovery.

Sector Recovery and Stock Performance

NetEase witnessed a surge of up to 14% in early trading, a recovery from the 25% plunge on Friday. Similarly, Tencent’s shares climbed by almost 4.5%, and Bilibili experienced a 2% increase. This positive shift highlights the market’s response to the regulator’s commitment to reassess the draft rules.

 

The contentious Articles 17 and 18 in the draft guidelines seek to regulate online gaming practices by banning forced player duels and high-value transactions in virtual entities. They also call for imposing recharging limits and warning users who exhibit “irrational consumption behavior.” These proposed measures have raised concerns among gaming companies and investors alike.

Impact on the Broader Tech Industry

The online gaming sector’s initial downturn and subsequent recovery reflect the broader volatility in China’s technology industry, which has been under scrutiny since late 2020. On Monday, the NPPA also announced it has approved over 100 new domestic games, alongside the imported titles.

 

Despite the recent uplift in gaming stocks, analysts from Nomura caution that the market concerns are not entirely alleviated. The “fire-quenching measures” may temporarily ease market apprehensions, but the overhang from the draft regulation persists, indicating that the industry’s stability remains uncertain.

 


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