China Initiates Damage Control After Tencent And NetEase Loses Over $80 Billion In Market Value

Last week, Chinese regulators ordered online games to limit the money spent inside the game and stop providing players with daily incentives for logging in. The new regulation created a state of unrest in the Chinese gaming industry, resulting in investors pulling out their money from the gaming giants. After announcing the new rules, the regulators ensured they took the feedback on the announcement. On Monday, China approved around 105 online games, indicating that the regulators are stepping back after announcing their strict rules.  

After China announced their new rule on Friday, the shares of Tencent, NetEase, and Bilibili took a big hit. At one point, Tencent's share dipped by 16%, while NetEase and Bilibili saw 28% and 14% falls in their prices, respectively. Thanks to the National Press and Publication Administration's new draft rule, Tencent, NetEase, and Bilibili alone recorded over $80 billion loss in their market value. 

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China Approves Over 100 Online Games To Showcase Their Support For The Development Of Online Gaming

China's gaming fiasco began on Friday (22 December 2023) when the national regulators announced the restrictions on online gaming. According to the new rules, online games will face a ban if they: 

• Reward players for logging in daily
• Allowing players to spend in the game for the first time
• Allowing players to spend consecutively in the game
• Content violates national security

After the new order was issued, the Chinese gaming industry was in a state of ruckus. Investors started pulling back their money from gaming companies, and giants like Tencent, NetEase and Bilibili took a significant toll. Since the in-game incentives are their primary revenue source, these three companies faced a $80 billion depreciation in their market value, hurting the Chinese economy badly. While discussing the impact of new draft rules, here is what Steven Leung, executive director of institutional sales at broker UOB Kay Hian in Hong Kong, said:

It's not necessarily the regulation itself - it's the policy risk that's too high. People had thought this kind of risk should have been over and had started to look at fundamentals again. It hurts confidence a lot.

On Saturday, Chinese regulators assured the community that they would review all the feedback and improve the draft rules. While the regulator's assurance did help in regaining confidence, the Beijing market was looking for a solid reason to recover. Later on Monday, China approved 105 domestic games, which looks like a sign of relief for the stakeholders in China. After the approval, the regular claimed in an official WeChat statement that the decision indicates the authority's "active support for the development of online games."