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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Chinese Technology giant and the world’s largest video game company, Tencent, has fired more than 100 employees over allegations of fraud, corruption, and embezzlement. The company reported more than 10 employees to the Police, with one of the employees being sentenced to three years in prison for accepting bribes from a competitor. There are six other cases that have resulted in imprisonment. 

The numbers prove that the size of internal corruption is larger and more severe in 2022 than the previous years. As a part of its anti-corruption campaign, Tencent has started annual reporting of the number of corruption and fraud cases found within the company. Some of the cases of 2022 include employees from the company’s News and Media content group and its famous TiMi and Lightspeed gaming studios. 

Founder, Chairman, and CEO of Tencent Pony Ma admitted that the corruption level is severe within the company. Last month in an internal company meeting, he gave an intense speech highlighting the problems within the company’s management, gaming business, WeChat platform, and other subsidiaries. He stated, “the internal corruption is really shocking, involving some managers. This year, Tencent introduced the digital capability for anti-fraud by collecting reimbursement within the company and the data of external suppliers.”

In response to the corruption allegations, the firm said that it had a zero-tolerance policy against such behavior and would blacklist the people and parties involved in such shady business. The company also said that external firms and businesses involved in such transactions will be barred from future contracts. 

In the last couple of years, Tencent has been involved in controversies and has been a target of the censorship campaign of the Chinese government. The biggest video game company in the world was under an 18-month ban from launching new games. The ban was lifted last September when the government approved a new batch of licenses, including one for Tencent’s action game, Metal Slug: Awakening. TiMi studios, a subsidiary of Tencent that developed this game, was also reportedly involved in the corruption scandal.

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Chinese internet giant Tencent has snapped up Sheffield-based UK games developer Sumo. Tencent is pursuing an expansionist drive that has already put it as the second-largest video game group in terms of revenue just behind Sony. The deal announced by Tencent is valued at $1.27 billion and will continue to push the Chinese company to the summit of global video games production and sales.

Tencent recently came under scrutiny in China after it sought to merge two video streaming sites DouYu and Huya. The Chinese market regulator blocked the move on possible breach of the country’s antitrust laws. Tencent has also had a very successful run with a number of its video games, some of which have high-profile mobile versions, like Call of Duty.

The company has several chart-topping video games that continue to drive the growth of its portfolio. The purchase is bound to boost Tencent’s global outlook, as it would add several of Sumo’s highly successful video games to its repertoire. Sumo has 14 studios spread across five countries, where it develops its video games.

Tencent holds an 8.75% stake in Sumo, and it is the second-largest shareholder of the company. Sumo had continued on a rising trajectory since 2017 when it was listed on the London Stock Exchange. The gaming provider’s shareholders will enjoy some impressive buyback of their shares in the deal with Tencent. Each share of Sumo has now appreciated 43% from its previous valuation, and a premium of $5.13 per share will be paid to shareholders of Sumo.

The move by Tencent is the second major deal involving a UK company after Electronics Arts (EA) snapped Codemaster within the past year. There has not been any report of a counteroffer at this time; hence it is unlikely that the deal would crumble. However, there could be some level of uncertainty in the regulatory regime of the company, due to the risks and uncertainties in the Chinese regulatory regime.

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