A set of draft rules released by China's National Press and Public Administration (NPPA), the country's video gaming regulator, took the industry by surprise on the Friday before Christmas. Shares of Tencent and NetEase, two prominent publishers, plunged as investors worried of another clampdown on the sector, at one point erasing almost $80 billion in value.
Beijing now seems to be engaging in damage control. First, the NPPA said it would "carefully study" public views to the draft views in a post just one day after it released the new measures, then followed it up with a Christmas Day approval of over a hundred new online games, including some from Tencent and NetEase.
And now authorities may be responding to the investor freakout in other ways. On Wednesday, Reuters reported that China removed a key official overseeing the press and publications regulator. The news agency, quoting five anonymous sources, said that officials removed Feng Shixin, head of the publishing unit of the Communist Party's Publicity Department, from his position in the days following the release of the new rules.
Feng's departure could signal that Beijing may want to walk back some of the restrictions released last month, one anonymous source told the South China Morning Post, whose report suggested Feng stepped down, rather than being removed.
China's draft gaming rules
The draft rules originally released by the NPPA on Dec. 22 aimed to curb the amount of time and money players spend on online games. The regulations would bar developers from offering daily login rewards to players, among other restrictions. The sweeping restrictions caught the sector off-guard, as Beijing had previously appeared to be loosening up on the industry following its mid-2021 crackdown.
Shares of Chinese companies related to the industry sank when the rules were first released. Tencent’s stock fell 12% while shares of NetEase dropped by almost 25%. The surprise rules wiped about $80 billion in value from the industry that day, according to a Bloomberg calculation.
Beijing may be trying to reassure the private sector amid the country's stumbling economic recovery throughout much of last year. Consumption has struggled to maintain its momentum after a short-lived reopening rally at the beginning of 2023, immediately following the lowering of COVID restrictions. Chinese president Xi Jinping acknowledged that "some enterprises had a tough time” in his New Year's message.
It's not clear if recent reports can further soothe concerns brewing in the Chinese video game industry. Shares of Tencent and NetEase were up around 1% in Hong Kong trading on Wednesday, yet both are still trading below the levels before the release of the draft rules on Dec. 22.
