(Bloomberg) – Tencent Holdings Ltd. plunged to 11% on Tuesday after a branch of China’s state-run news agency denounced “spiritual opium” and “electronic drugs” from gambling, prompting the country’s largest company to declare the possibility of ” prohibit children under 12 from playing completely.
The twin developments have fueled fears that Beijing will then turn to online entertainment after taking over the e-commerce, ridesharing and online education sectors. Tencent joined rivals NetEase Inc. and XD Inc. in a massive sell-off after an outlet run by the Xinhua News Agency published a dazzling review of their industry. The Economic Information Daily quoted a student as saying some classmates were playing Tencent’s Honor of Kings – one of its most popular titles – eight hours a day and called for tighter controls on the time spent.
It’s made waves in the world’s largest mobile gaming arena. The online link to the post was removed hours later without explanation, although the story remains in the print version. Tencent itself followed up later on Tuesday with a brief pledge to further limit play time for minors – to just one hour on weekdays and no more than two hours during vacations and holidays. He also plans to ban in-game purchases to under 12s, starting with his signature title. And the company has raised the possibility of exploring a total ban on games for those under 12, without further details.
Tencent made up some of its losses in the afternoon trading. But the heavily worded article scared already nervous investors after Beijing harshly criticized online industries, sparking a global sell-off of Chinese stocks that at one point exceeded $ 1,000 billion. Nervous investors continue to reassess their holdings as they reflect on the long-term ramifications of a crackdown on the companies of Jack Ma’s Ant Group Co. and Alibaba Group Holding Ltd. to Meituan and Didi Global Inc., supported by Tencent. Tencent has now lost more than $ 110 billion, or about 17% of its market value since the start of last week, when Beijing sharply stepped up its campaign.
“No industry or sport should prosper by wiping out an entire generation,” the article said, quoting an academic from a state-backed institution.
Read more: Asian gaming shares tumble after Chinese online regulation report
Tuesday’s worries are also spilling over to Japanese and Korean gaming stocks. Shares of Nexon Co., which derives about 28% of its revenue from China, fell 10%, the highest since May 13 and their lowest since May 2020.
“You can never pay too little attention to a story from Xinhua,” said Ke Yan, Singapore-based analyst at DZT Research. “The choice of the word spiritual opium is particularly hard, it would be surprising if the regulators did nothing about it.”
China’s most valuable company has clashed with regulators in the past, including in 2018, when oversight agencies cracked down on gambling addiction and temporarily suspended monetization licenses, crushing Tencent’s core business. The term “spiritual opium” has actually been used in Chinese media in the past to draw attention to the prevalence of gambling among young people, dating back to the era of PC gaming in internet cafes.
In response, Tencent has limited play time for minors and imposed other measures in an attempt to curb addiction. Last month, it installed facial recognition systems for some games to prevent children from using their parents’ credentials to purchase in-game items. As of Q4 2020, minors under the age of 18 will not accounted for only 6% of the gross revenue of the company’s Chinese online games.
What Bloomberg Intelligence says
Tencent and NetEase’s efforts over the past three years to reduce playing time for young players and improve content controls could, in our opinion, isolate them from yet another round of regulatory controls over the online gaming industry. in China. Still, they may have higher costs in the short term due to a possible need to speed up the deployment of identity checks and other systems in games to prevent young gamers from accessing inappropriate content.
– Matthew Kanterman, analyst
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It is not clear whether regulators now intend to refocus on the games industry or other parts of Tencent’s vast media and entertainment empire. On July 27, Tencent announced it was suspending new user registrations for its WeChat messaging super app, raising concerns over Beijing’s intentions for the gaming industry leader.
Investors have fled Tencent and its internet peers in recent weeks after China announced its toughest restrictions on the online education sector and issued a slew of other decrees governing illegal online activity and food delivery.
Xi Jinping’s government has embarked on a series of crackdowns against China’s most influential private sector companies over the past nine months on issues ranging from antitrust to data security, it seeks to limit the influence of the tech giants.
“The market is on a razor’s edge and is extremely nervous, especially after last week, but I think this will only make a further technical adjustment to the way things are done, rather than introduce a new one. risk factor that has not yet been assessed. ”said Chen Yicong, general manager of Beijing Chengyang Asset Management Ltd. “But it has happened before and all the addiction prevention mechanisms are in place, although of course there will always be loopholes.”
(Updates with Tencent’s commitment from the first paragraph)
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