China’s Anti-Spending Laws Affect Both The Gaming Industry And Players

China, a global powerhouse in the gaming industry, has recently unleashed a set of regulatory measures aimed at curbing excessive spending on online games. The impact has reverberated not only through the gaming giants such as Tencent and NetEase but has also sent shockwaves across the international market.

China’s conquest against battling “gaming addiction” is nothing new, but these new regulations are both different in scope and have had the biggest impact out of all previous regulations. Instead of limiting time, they’ve instead focused on limiting spending this time, causing tens of billions of dollars in damage worldwide.

Wow, China just killed their gaming industry. Overnight the value of the industry tanked $80B, with Tencent representing $50B of that lost value.

Well… on the brightside, Tencent wont be buying up every single western developer anymore.

— Game From Scratch (@gamefromscratch) December 22, 2023

The Regulations In Question

China’s National Press and Publication Administration recently announced a series of rules that target in-game spending, dealing a significant blow to major gaming companies. Tencent and NetEase, two of the industry’s giants, collectively lost a staggering $80 billion in market value.

The regulations, among other things, ban online games from providing daily login rewards, bonuses for first-time purchases, and incentives for consecutive spending. Moreover, they impose limits on how much players can add to their digital wallets for in-game transactions. It basically limits both devs and players.

China issues draft rules for online game management –
Reuters

Critical news for China’s video games industry as regulators reveal draft rules for the sector today. Details are as follows: pic.twitter.com/kMjDNVOofB

— Josh Ye (@ByJoshYe) December 22, 2023

These rules are a continuation of China’s efforts to tackle gaming addiction and what authorities see as irrational spending behavior. While restrictions on gaming have been in place, this latest move takes aim at the financial aspects of the industry, impacting the revenue models that gaming companies have relied on for years.

The stricter controls also extend to preventing the conversion of in-game assets into real cash, reducing revenue from loot boxes, and imposing tighter timelines on game approvals. So for all those CS:GO players who were lucky enough to pull golden skins or knives, looks like those tens of thousands of dollars of value just went down the drain.

Not The First Time Something Like This Has Happened

China’s attitude towards video games is nothing new. I mean, take a look at their existing regulations. Ever since 2019, the government has placed a limit of allowing only an hour and a half of gaming during the weekdays alongside a ban on gaming between 10 pm and 8 am. For minors though, the limit is one hour and only on weekends and holidays. Yikes.

At the beginning of this year though, this time limit was extended by an extra hour. Many gamers have had to find workarounds to these restrictions. They include buying cracked games and using adult accounts through parents or outsiders. It’s no easy task either, as these restrictions are enforced through facial recognition and ID registration.

Can’t have a gaming addiction if no one’s allowed to game, right? Looks like the government failed to realize the limits people are willing to go to do the things they like. It’s no wonder some of the best e-sports teams and players come from China since they literally have to rebel against the government to find time to play. Respect the hustle.

The actual revenue of the esports industry in China was 26.35 billion yuan ($3.71 billion) in 2023, with esports livestreaming claiming the largest share at 80.87%, a report showed. In 2023, the number of esports players in China reached 488 million. https://t.co/l5VcudSuQv pic.twitter.com/svQf4kcIIf

— Invest in China (@investing_china) December 26, 2023

Who’s Going To Be Affected The Most?

Any game that has a battle pass or allows in-game purchases is going to see a significant cut in their profits following these new rules. First up, the ban on daily rewards means that studios will have to rethink the ways battle passes and login rewards work. Secondly, limiting the amount of money players spend will obviously affect profits.

Limiting spending on games is obviously going to affect the Gacha industry the most. After all, they’re essentially games that have gambling built into the gameplay. Examples such as Fate Grand Order and Genshin Impact, where you have to gamble to have a chance at getting good characters will suffer the brunt of these regulations.

This becomes even more apparent when you realize that some of the biggest Gacha studios and players come from China. Studios like Hoyoverse, who have like 5 different Gacha games out right now, will have to rethink their strategies since their free games are only profitable through their in-game stores.

one snippet from the proposal in China pertaining to reforming gaming/mobile gaming monetization.
Basically would force Gacha games to have "reasonable settings" for pities and drop %s. Also force them to provide "other ways" to obtain the gacha items such as "direct purchasing" pic.twitter.com/HeGaehoCCJ

— fobm4ster (@fobm4ster) December 23, 2023

The Market Fallout

The immediate fallout of these regulations was a sharp decline in the stock values of major gaming companies, with Tencent bearing the brunt of a 12.4% drop in one day, wiping $47 billion off its market value. NetEase faced an even more substantial decline of 25%, resulting in a loss of $16.4 billion.

The impact extended beyond China’s borders, affecting international companies with ties to Chinese gaming giants. Prosus NV, a Dutch company with a 25% stake in Tencent, experienced a 20% drop in Amsterdam trading, erasing $17.1 billion of market value. The Nasdaq Golden Dragon China Index, representing US-listed stocks, declined by 2.4%.

Ubisoft Entertainment and Unity Software, both with ties to Tencent, saw their stock values dip as well. If there’s one positive outcome to take away from this, it’s that gaming sure has become a massive powerhouse in the economic market. Though, it looks like China couldn’t care less about the damage it does to the industry.

BREAKING: Tencent's stock crashes 16% in minutes as China announces guidelines aimed reducing "excessive gaming."

Tencent is China's largest public company and the drop erased ~$55 billion of market cap.

This also marks the biggest one-day drop for the company since 2008. pic.twitter.com/PsVvrkxSVV

— The Kobeissi Letter (@KobeissiLetter) December 22, 2023

Strain On Business Models

The heart of the matter lies in how these regulations challenge the existing business models of gaming companies. Rule 18, for instance, eliminates key incentives such as daily login rewards and bonuses for first-time purchases. I agree with the latter bit of the argument here, but cracking down on daily rewards seems pretty counterproductive.

These incentives have been pivotal in driving player engagement and in-app purchasing, making their removal a potential threat to daily active users and revenue. The requirement to set spending limits and the prohibition of certain in-game measures further restrict the flexibility gaming companies once enjoyed in monetization strategies.

China is trying to implement a new law about online gaming that forbids “daily login”, “1st time purchase bonus”, “accumulative purchase bonus” and “selling gacha service to under 18s”. (The law is not implemented yet, but in the process of asking public opinion)
byu/Just-4Head-8964 inAsmongold

Tencent VP, Vigo Zhang’s asserted that they will not need to change its “reasonable business model or operations,” suggesting a level of resistance to the regulatory changes. However, concerns raised by analysts suggest that the removal of these incentives could force publishers to fundamentally overhaul their game design and monetization strategies.

The real challenge lies in finding a balance between regulatory compliance and maintaining a profitable and engaging gaming experience for users. For an industry that’s become so reliant on such tactics, it’s almost like losing a limb. They pretty much have to completely reinvent the way they drive player engagement, which is no simple task.

China's New Gaming Rules will change Call of Duty Mobile's Chinese Version forever.

• Online games must set spending limits.
• Online games must ban daily login rewards.
• Probability-based luck draws must not be offered.
• Online game approvals must be processed by… pic.twitter.com/VUqFZ7kebG

— Leakers On Duty (@LeakersOnDuty) December 22, 2023

Implications On The International Market

The international fallout from China’s gaming regulations extends far beyond the immediate impact on gaming companies. Prosus NV, one of the largest technology investors and operators in the world, has Tencent as its largest investment, underscoring the vulnerability of international firms tied to Chinese gaming giants.

The interconnectedness of global financial markets means that regulatory changes in China resonate across borders, affecting investors and companies around the world. This poses a challenge not just for gaming companies but for investors and stakeholders who navigate the complexities of a globalized gaming industry.

Balancing Regulation And Enjoyment

As gaming companies grapple with the regulatory landscape, the impact on the gaming community becomes a critical consideration. China’s efforts to address gaming addiction and excessive spending reflect broader concerns about the well-being of players, particularly minors.

While protecting players, especially minors, from potential harm is a noble goal, the removal of certain incentives could alter the gaming experience for the broader community. Players who have come to expect and enjoy these features may find the new regulatory landscape less appealing, potentially leading to a decline in user engagement.

China might be banning all game mechanics that induces spending or addiction, such as daily login rewards and first top-up rewards. Not sure how this will affect Genshin, but Tencent’s stock fell by 12%.
byu/JustMyOpinionz inSteam

A Silver Lining

Seeing the financial and social backlash caused by the new regulations, Chinese authorities have indicated a potential revision of recently drafted online gaming rules following the substantial financial losses incurred by major tech companies due to the planned restrictions.

State broadcaster CCTV reported on Saturday that the authorities have taken note of the “concerns and opinions raised by all parties.” They further stated that the State Press and Publication Administration will meticulously study these concerns, aiming to subsequently revise and enhance the rules.

China approved 105 domestic games on Monday, the latest indication that Beijing is softening its stance after its move to tighten industry restrictions led to a $80 billion rout last week https://t.co/zAovPkZ19U

— Bloomberg (@business) December 25, 2023

Navigating The Future

China’s anti-spending laws mark a pivotal moment for the gaming industry, both domestically and internationally. The immediate financial impact on major companies like Tencent and NetEase is evident, but the long-term consequences are yet to unfold.

The international fallout serves as a reminder that the gaming industry is a global ecosystem, interconnected and interdependent. Investors, companies, and players alike will be watching closely as the gaming landscape navigates these new regulatory waters.

Striking a balance between responsible gaming practices and preserving the joy of gaming is the key challenge that lies ahead for the industry. The coming months will likely shape not only the financial trajectories of gaming companies but also the gaming experiences of millions around the world.