Tencent’s value drops following new Chinese regulations

As part of an effort to reduce the level of addiction to online games Chinese Regulators will be cutting the number of them available for public use, in addition to discouraging online play-time. News of this plan has impacted shares around the world, particularly those of companies in China such as Tencent Holdings Ltd and Netease Inc., both of whom’s share prices have dropped by over 5 percent.

The announcement from Chinese Regulators was just a part of their edicts which are targeted at reducing the growing levels of myopia, near-sightedness, in young children. Unfortunately for companies such as Tencent the news also comes before a long-term approval process for the release of a number of games into the Chinese market.

The new regulations cover a number of different aspects, including the promotion of outdoor activity, and the reduction in use time of electronics. However, it was the regulations relating to games that investors have latched onto, particularly in such a sensitive time for the industry.

Currently the Chinese government has frozen the approval process for titles since March 2018, without explanation. Tencent is also unable to monetise their most popular games, which has drawn speculations of doubt as to the relationship between the company and the government.

Alicia Yap, an analyst for Citigroup, said that the fall in share price could be an overreaction, particularly in the case of high-end game developers with popular titles on the market. However, the regulations will have an overhanging impact on the market, the effects of which remain to be seen.

In New York Netease shares fell by 7.2 percent, Capcom Co. shares fell by 7.2 percent, and Nexon Co. shares fell by by 5.1 percent. Many game creators in Japan also saw a fall in share price, many of which depend on China for their revenue both in full game sales and microtransactions.

The regulations seem to be part of a larger plan that has begun with President Xi’s campaign to improve eyesight, which aims to reduce myopia in young children and teenagers at a rate of 0.5 percent a year to 2023.

Instructions to parents in China arr to restrict the use of electronic products while they are with their children, with any devices used for non-learning purposes being restricted to 15 minutes sessions, adding up to no more than an hour a day.

Related Topics: China, Tencent

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