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China’s strict gaming rules send shares of Tencent Holdings and NetEase lower

Highlights

  • China proposes strict gaming rules, targeting compulsive behavior and spending.

  • Major companies Tencent and NetEase face significant stock value declines.

  • Regulator approves 105 games, signaling potential easing of restrictions.

In recent developments within China’s online gaming sector, significant regulatory shifts are reshaping the landscape. The National Press and Publication Administration of China has proposed stringent rules aimed at curtailing compulsive gaming behaviors and in-game spending. These include bans on incentives for daily play and purchases, limitations on money additions to online wallets, and a focus on preventing irrational gaming compulsions.

Furthermore, game content threatening national unity is prohibited, and companies are mandated to store servers within China and issue warnings to users exhibiting compulsive behaviors.

The repercussions of these proposals were immediate and profound, with major gaming companies like Tencent Holdings and NetEase experiencing sharp declines in their stock values. Tencent, the world’s biggest gaming company, saw its shares plummet by as much as 16%, while NetEase suffered a 25% fall. These changes echo the 2021 regulations that limited online gaming for minors to three hours weekly, enforcing a curfew and requiring player identification for online registration.

However, in a move to assuage industry concerns, the gaming regulator recently approved 105 online games, including titles from Tencent and NetEase. This approval, the highest in 17 months, signals a potential easing of the stringent measures.

Despite the initial stock market turbulence, shares in these companies partially rebounded, reflecting the market’s adjustment to these regulatory changes.

This evolving situation demonstrates the delicate balance between regulatory enforcement to curb gaming addiction and the need to sustain the growth of a lucrative industry. As these new rules await final approval, the Chinese gaming industry navigates a challenging path, balancing compliance with innovation and growth.