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Tencent and NetEase experience an $80 billion drop in market valuation due to China's clampdown on gaming monetization strategies

Chinese regulators have introduced a series of stringent restrictions on gaming monetization methods, resulting in a combined loss of nearly $80 billion in market value for Tencent and NetEase. As per Reuters, the newly implemented rules include expenditure limits for online game players and prohibitions on daily login perks, initial purchase bonuses, and incentives for repeated spending.


Moreover, games are now forbidden from offering probability-based lucky draw features to minors, impacting loot boxes and gacha monetization. Publishers are also barred from facilitating the auction or speculation of in-game items. Additionally, game publishers releasing titles in China are now required to store their servers within the country.


An optimistic note for the industry is the reduction of the rigorous license approval process, previously essential for game releases in China, now limited to a maximum of 60 days. Public input on these regulations is open until January 22, 2024.


In response to the announcement, Tencent shares plummeted by up to 16%, while NetEase shares experienced a significant drop of as much as 25%. Steven Leung, the executive director of institutional sales at broker UOB Kay Hian, emphasized that it's not necessarily the regulations themselves but the perceived high policy risk that has shaken confidence in the market.


The Chinese government's recent crackdown on the gaming and broader tech industries has been ongoing for the past few years. In 2021 and 2022, there was a nine-month freeze on new game licenses. This freeze, coupled with other regulations, a global market downturn, and unfavorable macroeconomic conditions, resulted in a 14.4% year-over-year decline in China's mobile games market in 2022.


The gaming industry now faces a challenging landscape, with stakeholders navigating the evolving regulatory environment in China, impacting both domestic and international gaming companies.


Source: adapted from an article by Craig Chapple, Head of Content for PocketGamer.biz.

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