Tencent Recoups Some Losses After China Soothes Crackdown Fears
(Bloomberg) -- Tencent Holdings Ltd. regained just some of last week’s share losses after Beijing softened its stance on controversial new gaming restrictions, suggesting investors remain wary of another crackdown on the world’s largest mobile arena.
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Tencent climbed as much as 4.9% while smaller rival NetEase Inc. jumped more than 14% in their first Hong Kong trading session after the government tried to assuage the market, tracking a Tuesday rebound in their mainland Chinese-traded peers. Bilibili Inc., a streaming service popular with gamers, gained more than 7% on Wednesday.
Their bounce-back represented a fraction of Friday’s $80 billion rout, when regulators slapped sweeping restrictions on in-game spending and playing time. Investors remain on edge following the surprise curbs, which revived fears that Beijing may again target the online content sphere. Tencent remains down about 8% from before the regulations surfaced.
The government has since sought to tone down its approach. Over the weekend, state-backed media carried comments from industry groups that cast the guidelines in a positive light, while the regulator itself approved a record 105 games for domestic publication and promised to review its more controversial mandates. A slew of gaming companies have also announced share buyback plans, to showcase their confidence.
“The normalized approval schedule despite release of updated ‘guideline’ suggests the government remains supportive on healthy development of the online games industry,” Citigroup Inc. analysts including Alicia Yap wrote in a Tuesday note. “It is positive for the sector to see major studios obtaining quality titles.”
Investors hope regulators will roll back at least some of the more divisive rules after taking industry feedback over the next month.
State media outlets over the weekend carried reports outlining the thinking behind the latest regulations, which they said fill a yearslong vacuum in China’s complex game censorship regime. In 2019, the Ministry of Culture and Tourism canceled a previous set of rules after surrendering oversight of the sector to the newly formed National Press and Publication Administration, which was also responsible for issuing commercial licenses for new game releases. That government shakeup was partly why regulators halted licensing approvals in 2018.
The rules proposed by the publication watchdog inherited some restrictions set by its predecessor, including mandates banning forced player-duels and content that reveals state secrets. But crucially, they introduced an unspecified cap on adult player spending in one of its most unpopular clauses, which regulators have said they will consider revising.
But fears of tech regulation run deep in China.
The sweeping gaming restrictions, which caught industry players and investors off guard on the final trading day before Christmas, reminded many of the brutal tech-sector crackdown of 2021. That year, various agencies abruptly imposed curbs on sectors from e-commerce to entertainment, reining in Jack Ma-backed Ant Group Co. and Alibaba Group Holding Ltd. while decimating the online education industry by declaring profits illegal.
“Although we think the short-term sell off is likely to continue in the coming days, given investor frustration and negative read-through to Internet and general China equity regulation risk, we believe the share price reaction to the Exposure Draft is overdone,” JPMorgan Chase & Co. analysts including Alex Yao wrote in a note. “We expect a negative but insignificant impact on Tencent and NetEase’s gaming monetization.”
--With assistance from Ishika Mookerjee and Shikhar Balwani.
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