China’s Gambling Industry Faces Upheaval with New Regulatory Proposals

China’s gaming industry, valued at $45 billion (£31.3 billion), is facing significant changes due to proposed restrictions on time and spending. Regulatory authorities have announced new rules aimed at limiting spending and rewards in online games in order to protect minors. This has led to panic among investors.

Shares in Tencent, one of China’s biggest gaming companies, fell by more than 12% on Friday, resulting in a loss of over $43 billion in market value. NetEase, another major player in the gaming industry, also saw its shares fall by more than 24%. Even BiliBili, a social media site that heavily relies on gaming revenue, experienced a nearly 10% drop in share prices. However, on Saturday, the regulator slightly softened its stance, stating that they have taken into consideration the concerns and opinions raised by all parties and may make further modifications and improvements to the proposals.

This is not the first time China’s gaming sector has faced regulation. In 2021, the industry was targeted by authorities to limit the amount of time young people spent playing video games. Under-18s were restricted to one hour of gaming per day on Fridays, weekends, and holidays. Although enforcing this rule proved challenging, it had a significant impact on the industry.

Despite the crackdown, video games remain popular in China. Revenue from domestic gaming grew by 13% this year. In the first half of 2022, the number of gamers in China reached a record 668 million, which is equivalent to half of the country’s population. However, a study conducted by researchers at the University of York revealed that previous restrictions implemented in 2019, which limited gaming to 90 minutes a day, had no effect on heavy gaming.

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While shares in Tencent and NetEase have recovered slightly since Friday, they are still below their pre-regulation levels. Vigo Zhang, the vice-president of Tencent Games, stated that the company would strictly adhere to any new regulations.

Industry analysts predict that smaller game companies will be hit hardest by the proposed restrictions. Following the first crackdown in 2021, around 14,000 small studios and video game firms reportedly deregistered, and new game approvals were paused for nearly a year.

The latest proposals, however, include some measures that could benefit the industry. For example, regulators will be required to process new game licenses within 60 days. Additionally, Beijing has recently approved 40 new imported games for domestic release, demonstrating their support for the development of online gaming. Furthermore, an industry association reported that on Monday, another 105 new games were approved by the authorities.

The proposed rules are currently open for public consultation until January 22nd, allowing various stakeholders to provide feedback and opinions.

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