The Impact of Draft Rules on Chinese Online Gaming Stocks

The Impact of Draft Rules on Chinese Online Gaming Stocks

Chinese online gaming stocks experienced a significant rise on Wednesday, recovering from losses incurred in the previous session, following reassurances from the country’s top gaming regulator. The proposed draft rules, aimed at curbing excessive online gaming and spending, had initially caused a plunge in the shares of major players such as Tencent, NetEase, and Bilibili in the world’s largest online gaming market.

On Wednesday, NetEase shares surged by up to 14% during early trading, demonstrating a strong recovery after experiencing a 25% decline on Friday. Similarly, Tencent witnessed a 4.5% increase in early trading, regaining some of the $43 billion in market value it lost during the previous rout. Bilibili, a social media site heavily reliant on Chinese domestic gaming, also saw a 2% climb, recuperating from a 10% drop on Friday.

China’s top gaming regulator has promised to carefully consider the concerns raised by stakeholders, particularly regarding Articles 17 and 18 of the draft rules. These articles seek to prohibit online games from coercing players into duels with others and require game owners to abstain from facilitating high-value transactions in virtual entities, among other measures. The draft rules also propose the banning of daily login rewards and the imposition of recharging limits, accompanied by pop-up warnings for users displaying irrational consumption behavior.

Broader Impact on the Technology Industry

The introduction of these draft rules follows a broader crackdown on the Chinese technology industry that began in late 2020. The National Press and Publication Administration, responsible for approving new games, recently announced the approval of over 100 new domestic games after approving 40 imported games. While these measures may partially relieve market concerns, analysts from Nomura assert that they are insufficient to fully alleviate the apprehensions caused by the draft regulations.

The Chinese online gaming industry experienced a notable rebound in stock prices after the country’s gaming regulator expressed a willingness to carefully consider the concerns of the various stakeholders regarding the proposed draft rules. While the recovery is a positive development, industry analysts caution that the current measures may not fully address the underlying concerns and uncertainties raised by the new regulations. It remains to be seen how the gaming market will adapt to these potential changes and how the industry’s major players will navigate the evolving landscape in the world’s largest online gaming market.


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