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China's Proposed Online Gaming Rules Result in Tencent's Market Value Decrease of $43 Billion

Lanon Wee

On Friday mid-morning ahead of a four-day Christmas weekend holiday in Hong Kong, Beijing issued draft guidelines for controlling excessive gaming and spending. Subsequently, Tencent shares dropped by 12.4%, NetEase shares plummeted 24.6%, and Bilibili shares declined 9.7%. Vigo Zhang, Tencent Games vice-president, informed CNBC that the new rules do not alter the online gaming's established model and operations. On Friday, China's National Press and Publication Administration stirred up financial markets with new regulations for curbing overindulgence in gaming and spending, which caused Tencent to plunge in market value by $43.5 billion. This negatively impacted some of the most famous online gaming-related companies in China, including Tencent, NetEase, and Bilibili.  Brian Tycangco, an analyst from Stansberry Research, said to CNBC that the move was the last thing the market expected from Beijing and it called into question how successful existing business models would be as the regulations cut into incentives and rewards. Tencent, whose popular platform WeChat was responsible for more than a fifth of the company's third-quarter revenue from domestic online gaming, saw the Hong Kong-listed stocks plunge by 12.4% to HK$274, the lowest it has been since the end of November 2022. NetEase, of which 80% of its third-quarter earnings came from Chinese domestic gaming, experienced a 24.6% drop to HK$122 on Friday, leading to a loss of about 115.1 billion Hong Kong dollars ($14.7 billion) in its market capitalization. Meanwhile, Bilibili, from which 17.1% of its total third-quarter revenue was sourced from Chinese state gaming, had their stocks decline 9.7% to hit HK$80.30, its least value since November 2022 - this equated to a reduction of 2.4 billion Hong Kong dollars ($307 million) in its market capitalization. The Hang Seng Index and the China Enterprises Index, containing the most significant offshore mainland blue-chip listings in Hong Kong, was down by 1.7% and 2.3% respectively prior to the commencement of a four-day vacation. According to Tycangco, "I'm confident that we will have a better understanding of these new regulations within the upcoming days and weeks. Nevertheless, investors do not want to stick around to watch the confusion clear up. In the future, improved coordination amongst the industry and the regulators will be beneficial to all." China's leading gaming regulator has recently put forth new regulations dictating that operators of online games must not facilitate or sanction any high cost or valuable transactions involving virtual assets via bidding or speculation. Furthermore, providing daily login rewards has been prohibited, while restrictions have been placed on recharging, with notification messages being displayed to customers who display "irrational consumption behavior." Vigo Zhang, Vice-President of Tencent Games, has expressed that these new directives don't have an extensive substantive effect on the functioning of the online gaming industry, rather they communicate the authorities' backing of the industry, and permit the production of premium-grade games. Learn more about opportunities in China from CNBC Pro. JPMorgan has identified several stocks to acquire, but Alibaba isn't one of them. The portfolio manager explained why he is most confident in this one particular Chinese tech stock. Morgan Stanley believes that China's version of Spotify has not been given the recognition it deserves. Goldman Sachs is bullish on a sub-sector in China and named three stocks to purchase. JPMorgan selects certain Chinese stocks to purchase at the moment. It is not Alibaba. The portfolio director clarifies why he is particularly confident in this Chinese technology stock. Morgan Stanley deems China's variation of Spotify as not acknowledged enough. Goldman Sachs favors this sub-segment of the Chinese market - and provides three equities to buy. These newest draft regulations arrive as the broader Chinese tech industry is recovering from a more expansive clampdown that started at the end of 2020. A little more than a year back, Tencent obtained rights to five of the 45 overseas gaming licenses affirmed by the National Press and Publication Administration in the initial cluster of confirmations since Beijing's enforcement of the video-games area that began in August 2021. At China's yearly legislative get-togethers in 2021, President Xi Jinping attributed internet gaming dependence to the expanding myopia and the unfriendly mental prosperity of the nation's adolescents. In the same year, the National Press and Publication Administration proposed to restrict minors' online gaming time to not more than three hours a week, and there should only be access during 8 p.m. to 9 p.m. on Fridays, weekends and public holidays since early September. Additionally, the Cyberspace Administration of China proposed to cap people below the age of 18 to a maximum of two hours of smartphone use per day. — Reporting contributions by Lim Hui Jie and Arjun Kharpal, as cited by CNBC. This story previously had an error which inaccurately conveyed the milestone that followed the decrease in Tencent's stock price.

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