Tencent shares dip amid fears of Chinese government crackdown on gambling
Early Tuesday, shares of several game companies, including Tencent, fell sharply to 11% in Hong Kong markets, after the Chinese Communist Party’s propaganda department told the ChinaJoy exhibition that the games video had to be “good, clean and secure.” Shares of companies like Tencent, NetEase and XD began to fall in response. Shares of China Mobile Games and Entertainment Group (CMGE) even fell 20%.
Several game companies elsewhere in Asia, including Japanese giants Capcom, Konami and Nintendo, have also taken a hit, but not to such a degree. While at the time of writing, Tencent shares have rallied to -6%, the company has lost a total of $ 110 billion since the start of last week.
Break: 😳😳😳Chinese gaming stocks are in free fall today. NetEase is down 15%. Tencent is down 9%. Bilibili is down 9.5%. XD is down 18%. It comes after the Chinese Communist Party’s Propaganda Department told #ChinaJoy that the games should be good, clean and safe. pic.twitter.com/7uHeDhqP1aAugust 3, 2021
Shortly thereafter, a newspaper run by China’s state-run news agency Xinhua published an report qualifying video games as spiritual opium‘ with a harmful effect on adolescents, and called Tencent specifically as one of the main drivers of this.
The publications run by Xinhua are considered to represent the official position of the Chinese government, but there was a small turnaround in this regard and the article was deleted. Nonetheless, the wording sounded alarm bells, as the report was similar to an article in another newspaper affiliated with the official news agency about twenty years ago, calling the games “digital heroine.” While the Chinese government has been generally interested in developing its video game industry since its console gaming ban ended, insiders noted that Chinese President Xi Jinping is not a big fan of games:
I don’t know if calling the games “opium” reflects the official position of the central government, but it certainly is in line with President Xi’s thinking. : //t.co/osmCiwQB5F https://t.co/3EngY8pfGI pic.twitter.com/9jcwGRTjEUAugust 3, 2021
To understand why a single remark made such waves, we need to examine the influence of regulators on the Chinese gaming industry. In 2018, regulators realized the potential damage from in-game monetization, loot boxes and suspended monetization licenses. Measures such as Tencent use facial recognition to prevent kids from playing all night and design 12 rules for streamers to promote “healthier environments” are direct responses to government regulations, all in an effort to keep games safe for children.
Businesses are afraid to anger regulators in China because crackdowns can effectively mean the downfall of entire sectors. About two weeks ago China bans off-campus education, because education should not be a source of profit, leading to massive closures and job losses in the online education sector. The fear is that if regulators find games unsuitable for children for whatever reason, it could spell the end of gambling as it currently exists in China.
Tencent has since issued a statement promising to further limit playing time for accounts registered to minors to one hour on weekdays and two hours during school vacations and public holidays. Following a recently announced age-based rating system for games in China, in this statement, Tencent is now also considering a complete ban on its games for children under the age of 12.