The specter of regulatory crackdowns by Beijing has re-emerged with new rules about videogames that have shaken the technology sector. It’s the latest worry for investors in Chinese technology stocks.
Chinese regulators announced a spate of new rules aimed at the videogame sector on Friday that effectively limit spending on online games, threatening revenue for the likes of
NetEase
and
Tencent Holdings,
among the world’s largest videogame companies.
China’s National Press and Publication Administration proposed a ban on rewarding users for spending on online games, as well as a prohibition on rewarding players for logging into games daily, a common mechanism used by videogame publishers to incentivize repetitive play. The new rules—which are open for comment until late January—also propose pop-up messages that would warn users about in-game spending, an important revenue driver for game developers.
The stock market reaction was swift. American depositary receipts of NetEase were down 19% in early Friday trading, with Tencent stock down 13% in Hong Kong trading.
Chinese tech stocks more broadly were also feeling the pain. Shares in
Alibaba Group
dropped 1% in Friday trading with
JD.com
stock down 0.5%.
The rules, while limited to videogames, are a reminder of the policy risk represented by Beijing, where regulators have wiped away billions of dollars in market capitalization with rules that suit the priorities of the government.
“Aside from questions over the pace of any Chinese recovery, the unpredictable regulatory approach taken over recent years will serve as a warning for anyone seeking to invest in Chinese stocks going forward,” said Joshua Mahony, an analyst at broker Scope Markets.
China began a crackdown on its tech sector in late 2020 as President Xi Jinping enacted rules on competition, consumer behavior, data security, and more. Many stocks like Alibaba lost some half of their market capitalization as China’s high-growth sector was humbled.
This year looked like the country was stepping away from that crackdown with an improved policy backdrop. But the economic slowdown in China has replaced regulatory worries, pressuring its consumers and weighing on tech stocks.
With China’s economy forecast to slow down further in 2024, and the specter of regulatory crackdowns looming large once again, it seems like the Santa Claus Rally buoying the
S&P 500
is unlikely to spread cheer to Chinese stocks.
Write to Jack Denton at [email protected]
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