technology

Tencent, NetEase Shares Dive After Chinese Regulators Summon Firms; Report of Game Approval Freezes

Arjun Kharpal | CNBC
  • Chinese regulators called in Tencent, NetEase and other game companies for an interview reminding them of restrictions on game time for children.
  • Share price losses accelerated in afternoon trade after the South China Morning Post, citing people familiar with the matter, reported Beijing had temporarily frozen game approvals.
  • Tencent shares closed down 8.48% in Hong Kong, while NetEase fell 11%.

GUANGZHOU, China — Shares of Tencent and Netease plunged on Thursday after Chinese regulators called them and other gaming companies for an interview, reminding them of restrictions on game time for children.

Tencent shares closed down 8.48% in Hong Kong, while NetEase fell 11%.

The sell-off began in the morning session on news that the two companies had been summoned by regulators on Wednesday. In a statement, China's propaganda department, cyberspace regulator and other authorities said they would "seriously deal with" any violations of their rules.

But share price losses accelerated in afternoon trade after the South China Morning Post, citing people familiar with the matter, reported Beijing had temporarily frozen game approvals. The SCMP later issued a correction after the market close to clarify regulators are slowing the approvals process, rather than suspending it. CNBC was unable to immediately confirm the report.

The last time this happened was in 2018, when regulators froze game approvals over concerns about children's eyesight. It hit Tencent and NetEase, China's two biggest online gaming players.

During the interview on Wednesday between regulators and gaming firms, authorities reminded the firms that they need to limit game time for children under 18 years of age. Under rules announced last month, kids are not allowed to play online games for more than 3 hours per week — and only during specific times and days. The Chinese government has long been concerned about the impact of gaming on the physical and mental health of children.

Gaming companies should also be controlling their content, including banning "illegal" content such as pornography, the regulators said.

Authorities added that unfair competition and monopolies should be avoided. China's market regulator said last month that internet companies across the board should avoid unfair competition, and issued draft rules that target such practices.

Companies should also change game designs that get users addicted, they said.

In response, gaming companies said Thursday that they seek to comply with the guidance from regulators.

"We believe in healthy game play and take very seriously the physical and mental health of minors. We appreciate the guidance and instruction from the relevant regulators, and will work hard to be in full compliance with all rules relating to youth game addiction and content regulation," Tencent said in a statement to CNBC.

NetEase also added that it will comply, saying in a statement to CNBC that it "will strictly follow the rules and instructions over anti-addiction measures for minors in games."

"We will continue our efforts to deliver more quality games and promote a healthy and responsible gaming environment for minor players, as we seek to build and promote a wholesome gaming environment in China," the firm told CNBC.

Could gaming firms' revenue-generating models get hit?

The warnings from the meeting with the regulators do not appear to be overly new. Instead, they repeat past restrictions around limiting gaming time for minors, removing content authorities deem as "illegal" and trying to stop unfair competition and monopolies.

However, comments from the authorities about getting companies to adapt game designs could stoke fears about changes to their business models that rely on players spending money.

For a long time, Chinese regulators have been concerned about gaming addiction among young people.

Last month, an affiliate publication of the official Xinhua newspaper, ran an article calling gaming "opium." The piece was later removed and republished with references to the drug removed, but it sparked fears among investors that further regulation could come to gaming.

Gaming giants have said they will not be overly affected by continued restrictions on kids' playing time. Tencent said only a small amount of gaming revenue comes from younger players in China. In the second quarter, 2.6% of gross game receipts in China were derived from players under 16 years old.

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