China is reviewing new guidelines it announced last week that seemingly triggered a massive meltdown in gaming stocks. China’s video games regulator announced new draft rules for online games last week and it says it will study all feedback seriously to improve the draft rules.
The new draft rules sought to limit how much gamers can spend and restrict rewards that will encourage gamers to spend more time online. The sudden and unexpected announcement resulted in a seemingly instant tailspin for the market. Several gaming companies and platforms like Tencent, NetEase, and Bilibili all saw their stocks decline by at least 14%. Tencent had a 16% price slump while Bilibili saw 14% chalked off its market value. NetEase had a massive 28% decline in its stock within the period. The three mentioned stocks lost a cumulative $80 billion in market value after the announcement of the draft rules.
The market decline also affected online games-related shares listed in the US and Europe. The new crackdown seems reminiscent of a harsh crackdown on the tech sector in late 2020 that continued up to the middle of this year. This affected the Chinese economy which had continued to struggle on the back of a debilitating COVID-19 pandemic and lockdowns.
China’s National Press and Publication Administration, the regulator, seemed not to have gauged the market sufficiently before introducing the new rules. It has now kickstarted damage control measures in the aftermath of the meltdown. The next day, it stated that it would seriously study the industry’s reaction and make the needed adjustments to the draft rules. The regulator then announced it had approved 105 new online games – seen as a move to ease tensions. The regulator says the new approvals demonstrate its active support for the development of online games. It remains to be seen how investors evaluate these latest moves by Chinese authorities.
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