Caixin
Sep 10, 2021 04:44 AM
BUSINESS

Tencent, NetEase Shares Lose $60 Billion Amid Gaming Crackdown

A gamer uses an illuminated keyboard to play a computer game at the Gamescom gaming industry event in Cologne
A gamer uses an illuminated keyboard to play a computer game at the Gamescom gaming industry event in Cologne

(Bloomberg) — Tencent Holdings Ltd. and NetEase Inc. shares shed more than $60 billion of value amid growing investor fears that Chinese regulators are preparing to dramatically tighten their grip on the world’s largest gaming industry.

Tencent shares extended losses late Thursday to finish 8.5% lower, its steepest drop since July. NetEase plummeted 11%. The declines continued in the U.S., with the American depositary receipts of both companies down about 4% as the market opened in New York. Representatives of the companies didn’t immediately respond to requests for comment. Prosus NV, Tencent’s biggest shareholder, fell 6.6% in Amsterdam while parent Naspers Ltd. dropped as much as 8.3% in Johannesburg.

Chinese regulators summoned industry executives to a meeting Wednesday and told them to break their “solitary focus” on profit and prevent minors from becoming addicted to games, according to the government’s Xinhua News Agency.

Regulators also said China will slow approvals for all new online games, the South China Morning Post reported Thursday, amending an earlier report that there was a freeze on approvals.

The reports accelerated a stock selloff that began in the morning, although Xinhua made no mention of the approval suspension. Investors were already on edge because of a 10-month government campaign to rein in industries from e-commerce and ride-hailing to social media.

The Chinese government is waging a concurrent campaign to curb addiction among minors, slow spending on virtual items and prod youths toward more productive pastimes. The government last week issued new regulations for the industry, including limiting the amount of time children can play video games to three hours a week. 

A moratorium on new titles would mark an escalation in the gaming crackdown, hitting developers’ wallets directly. There was a 10-month freeze on game monetization licenses in 2018, then intended to combat addiction and myopia among children. That spurred Tencent’s first profit drop in at least a decade and helped wipe about $200 billion off its market value at one point.

Tencent’s hotly anticipated League of Legends Mobile title won’t launch Sept. 15 as initially planned because “it needed to improve the gaming experience,” according to a notice posted on the game’s official Weibo page. Testing will run till after the National Day holiday in October, the notice said without elaborating.

Officials from the Communist Party’s publicity department and the industry regulator disclosed their decision on slowing approvals to Tencent and NetEase executives at Wednesday’s meeting, the South China Morning Post reported, citing a person briefed on the matter.

A previous version of the newspaper’s report said gaming approvals were put on hold while the government figures out how to whittle down the number of titles in the market, particularly after the frenetic pace of the first half.

Investors have grown increasingly nervous about the gaming sector since August, when Chinese state media decried the “spiritual opium” of games, prompting Tencent to broach a ban for kids. While various newspapers have since walked back that comment, saying it was an overstatement, the lingering concern is that Beijing will next train its attention on an arena that’s pivotal to the bottom line of media giants from Tencent to Apple Inc. and Activision Blizzard Inc.

More broadly, Beijing’s campaign to rein in its giant internet industry is approaching an 11th month, a roller-coaster ordeal that began when regulators torpedoed the record initial public offering of Jack Ma’s Ant Group Co. before launching investigations into Alibaba Group Holding Ltd., Tencent-backed food delivery giant Meituan and Didi Global Inc.

Contact editor Bob Simison (bobsimison@caixin.com)

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