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China’s online gaming sector expected to see tougher controls

China’s State Administration of Radio and Television, which oversees the country’s gaming sector, said it would control the total amount of online games, explore age rating system and take measures to limit underage users’ playtime, according to a document released by the Ministry of Education late Thursday, which detailed a whole package of measures aimed to protect the country’s young people.

Hit by the news, the industry leader Tencent Holdings Ltd. ‘s shares are tumbling by 4.8 per cent as 2:15 pm Hong Kong time. American depositary shares of another major Chinese online gaming company NetEase Inc. dropped by 7.19 per cent to $194.39 overnight. Changyou.com Ltd.’s ADSs plunged by 6.32 per cent to $13.50.

The move comes after the online game sector has been hit hard by increasingly stringent regulations in the past few months.

It’s reported by Bloomberg earlier this month that Chinese regulators have frozen approval of any new game licenses due to an ongoing “restructuring of power among departments,” and the policymakers are increasingly concerned about violence- and gambling-related content in online games.

The authority reportedly has not given approval to any new games since the end of March, according to Chinese game news outlet GameLook.

Back in June, the Ministry of Culture and Tourism suspended the registration of domestically developed gaming products following an institutional restructuring plan of the State Council, China’s cabinet, leaving process open for imported game only.

China’s biggest gaming company Tencent has been the major target in the crackdown. On 13 August, the regulators required Tencent halt sales of “Monster Hunter: World” on the WeGame PC-gaming platform, due to a large number of complaints about the fantasy game that it had licensed from Japan’s Capcom.

Tencent’s chairman Ma Huateng later admitted that the authority had suspended issuing licenses for mobile games, “we have several games waiting for licenses and we’re not sure when the approval process will restart.”

Tencent was previously forced by regulators to put controls on its “Honor of Kings” title to limit use by children. It was also required to alter “PlayerUnknown Battleground” but has not received approval for the new version.

“The latest moves in plan indicate that the policymakers believe that what have been done to regulate the sector is still not enough,” according to the latest research note from the Guojin Securities, “more tough measures are not ruled out.”

Analysts believe that small games companies will be hit the worst, while big players may not feel major impacts and the regulatory measures are expected to help increase concentration of the sector.

“The control on total amount would be like a supply-side reform in the online game sector,” according to the TF Securities, “and that will benefit the top players such as Tencent and NetEase, in particular those with the capability to export games, since games made for overseas markets are not under the authority’s radar.”

The tightening measures come when the sector witness a sharp slowdown this year. Public online game companies in China posted a 2.71 per cent year-on-year growth in net profits in the first half of this year, according to their earnings reports. That’s compared to more than 15 per cent growth in each of the past five years.

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