China’s plans to regulate spending in online games caused massive share price losses for Tencent and NetEase.
A draft law by Chinese regulators to limit spending in online games caused massive share price losses of at times $80 billion for Tencent and NetEase.
As Reuters reported, the draft stipulates that in the future no rewards for daily logins and first or recurring payments would be allowed for players in online games. To this end, deposits into digital wallets should be limited.
Even if the law is not expected to be implemented until next year, the market’s uncertainty was reflected in the rapid decline in prices among gaming companies. Tencent lost up to 16 percent in market value, while NetEase’s market value even fell by up to 25 percent.
“Removing these incentives will likely lead to a decline in daily active users and in-app revenue and could eventually force publishers to fundamentally overhaul their game designs and monetization strategies,” explained Ivan Su, an analyst at Morningstar.
Due to addiction concerns, China temporarily suspended the approval of new games in 2021, approvals are now possible again and the draft law stipulates that the authorities must process approvals within 60 days, which would in turn be helpful for companies.
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