China slashes kids' online gaming time to just three hours a week

China will forbid minors from gaming more than three hours most weeks of the year, imposing their strictest controls yet over entertainment for youths in a blow to the world’s largest mobile gaming arena.
 

Gaming platforms from Tencent Holdings Ltd. to NetEase Inc. can henceforth only offer online gaming to minors from 8 p.m. to 9 p.m. on Fridays, weekends and public holidays, state news agency Xinhua reported, citing a notice by the National Press and Publication Administration. The new rules, which limit teen playing time to three hours most weeks of the year, is a major step-up from a previous restriction set in 2019 of 1.5 hours per day, most days. 

The escalating restrictions on Tencent’s biggest business are likely to spook investors that had cautiously returned to Chinese stocks in recent days, exploring bargains after a raft of regulatory probes into areas from online commerce to data security and ride-hailing ignited a trillion-dollar selloff in past weeks.

Netease slid as much as 7% in pre-market trading in New York, while Prosus NV, Tencent’s biggest shareholder, fell 1.9% in Europe.

“Three hours per week is too tight. Such a policy will have negative impact on Tencent too,” Steven Leung, an executive director at UOB Kay Hian (Hong Kong) Ltd. said. “I thought regulatory measures would take a break gradually but it’s not stopping at all. It will hurt the nascent tech rebound for sure.”

Tencent and other companies have said minors account for only a fraction of their businesses, especially after recent restrictions. The country’s largest games company has said the revenue from minors yields less than 3% of its gross gaming receipts in China.

Other key points in the new rules include:

• All online games should be linked to a state anti-addiction system, and companies can’t provide services to users without real-name registrations
• Regulators will ratchet up checks over how gaming firms carry out restrictions on things like playing time and in-game purchases

• Regulators will work with parents, schools and other members of the society to combat youth gaming addiction

The new rules underscore the extent to which Beijing is intent on curbing gaming addiction among youths and pushing its future workforce toward more productive pursuits. Earlier this month, state media published forceful critiques of the industry and at one point labeled games “spiritual opium.” That description was later removed, but share prices plunged out of concern for further restrictions.

Tencent, which in 2018 and 2019 grappled with a widespread gaming industry crackdown then focused on myopia among children, is also struggling with a plethora of tightening regulations in areas such as social media, online finance and commerce.

It has proactively reduced the number of hours that minors can play its games, but the company was not nearly as restrictive as the government’s new rules. It limited minors to just an hour during weekdays and no more than two hours during vacations and holidays.

“Since 2017, Tencent has explored and applied various new technologies and functions for the protection of minors,” Tencent said in a messaged statement. “That will continue, as Tencent strictly abides by and actively implements the latest requirements from Chinese authorities.”

What Bloomberg Intelligence Says
 

Tencent, NetEase and other online games companies in China may experience merely a modest hit to financial performance from the tightening of time restrictions on minors time spent playing games to three hours per week. Players under 16 accounted for just 2.6% of Tencent’s domestic gross game spending in 2Q, with those under 12 amounting to just 0.3%, though margins could be pinched in the near-term to accelerate the roll-out of compliance measures.

- Matthew Kanterman and Tiffany Tam, analysts

--With assistance from Shiyin Chen and Abhishek Vishnoi.