US$80b market rout on games rules shows there is much to lose
- Calm may have been restored for now, but mainland China regulators will now only be too aware to consider the financial impact of what they propose
Beijing giveth and Beijing taketh away, or is it the other way round this time?
First, the industry watchdog inadvertently caused a market rout of almost US$80 billion after it announced a plan to tighten online gaming restrictions.
Then, just before Christmas Day, the National Press and Publication Administration (NPPA) approved 105 domestic online titles, along with 98 imported ones.
Calm was somewhat restored in the market. Certainly it helped that the NPPA quickly clarified the proposed restrictions were still at a draft stage.
Feng Shixin, the long-serving publication bureau chief, has left his post. Some observers think the NPPA may now reconsider some of the more severe restrictions.
But, investors and industry insiders are worried.
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One of the proposed rules is that new games should not be violent, and players not be allowed to shoot at each other. That is the end of the world for some avid gamers! Their parents, though, may celebrate.
The new proposal, which will have a public consultation period until January 22, aims to create a healthier environment for players by reducing online incentives and rewards to entice them to stay in the game. The goal is laudable; many parents and educators love it.
Certainly gaming addiction has become a problem for many young people. The gaming industry and investors take a dimmer view.
The expected ban will leave out many top-up functions within a game on which much marketing depends, and will have an impact on the revenue streams of new titles.
Share prices of game producers small and large, such as Tencent Holdings, the world’s largest video gaming company by revenue, and NetEase and Bilibili all went into a tailspin before stabilising later.
Industry insiders have pointed out that the shock announcement ran counter to Beijing’s focus on growth and stabilisation of market expectations that emerged from the agenda-setting central economic work conference early in December.
The fact the NPPA had to quickly put a softer gloss on the planned restrictions meant that it was mindful of an earlier central directive that officials must be careful about market impact when they publish promulgations and policies.
China’s Christmas gift to game developers: 105 approved titles, the most all year
The NPPA has to balance market expectations as well as regulatory imperatives. Some of its responsibilities overlap with the Cyberspace Administration of China, which also has power to supervise online content.
It would be better for all sides for regulators with mandate overlaps to coordinate their policies and planning better to avoid potential conflicts and unintended consequences.
China’s economy is going through headwinds. While the gaming industry is an important but not a key sector, its latest travails should be a cautionary tale for regulators and industry leaders alike.
