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While the recent updates by Chinese authorities have affected the companies as of now, analysts assess that this directive might not have a very significant impact on China’s gaming giants as such.
Tencent Holdings Ltd (HKG: 0700) and NetEase Inc (HKG: 9999), one of the two largest gaming companies in China witnessed a drastic decrease in their share prices due to a recent clampdown by the government on the amount of time children were allowed to play games.
On August 30th, China’s National Press and Publication Administration notified that the children below eighteen years of age will be allowed to play online games only and that too for three hours in a week in some particular time intervals. Online gamers get to play games only for an hour on Fridays, weekends, and holidays which will be allowed between 8 pm to 9 pm. The ruling remarkably diminishes the game time for minors, who earlier were permitted to play for up to 90 minutes a day whenever they wanted.
NetEase had reportedly dipped by 2.9% in the afternoon market in Hong Kong. On the other hand, competitor Tencent had stumbled to more than 3% during the day but an increasing slope in the graph was observed later.
While the recent updates by Chinese authorities have affected the companies as of now, analysts assess that this directive might not have a very significant impact on China’s gaming giants as such. One reason for the following hypothesis is that the current trends show a reversed course for Tencent, even though the largest source of revenue for both the giants is gaming. In a statement a while ago, Tencent had claimed that there was a very small amount of income that was generated through young players in China.
Investment Banking group Jefferies published a note on Monday stating that there was about five percent revenue generated from minors under 18 years of age. It also said that even if they add the 3% earnings impact to Tencent, minor online gaming still reflects a small, single-digit revenue collection for NetEase.
The move reflects a long-going concern of the Chinese authorities about the impact of excessive gaming on the minds of young people. A month ago, an article was introduced by the state-run Economic Information Daily that asserted that several teenagers had grown an addiction to online gaming, which consequently had a negative impact on them.
The article resulted in diminished shares of some of China’s largest gaming companies. Following the article in July 2021, Tencent introduced a facial recognition system that would restrict children to play games between 22:00 to 8:00. In 2018, regulators stalled the approvals of new game releases for a few months.