China’s video game developers warm up as the crackdown eases

HONG KONG: The conclusion of China’s extensive crackdown on its video game market is anticipated to revive the devastated sector this year, but continued restrictions on some content and adverse economic conditions will limit the recovery’s scope.

The once-booming business was destroyed by Beijing’s strict regulations in 2021, which reduced the market value of sector leaders like Tencent Holdings and NetEase Inc. by more than half and shrank the world’s largest gaming market for the first time.

After China’s video games authority issued the first gaming licences in 2023, the most recent indication that the crackdown is ending, shares of Tencent, the largest gaming company in the world, and NetEase increased this week.

Analysts predict that China will approve between 800 and 900 games this year, possibly more, surpassing the 512 and 755 games released in 2022. No titles were authorised between August 2021 and March 2022.

The licences, according to JP Morgan analysts, “suggest a more hospitable regulatory climate for the China gambling business.” “With a plentiful supply of games, we are more optimistic about the overall growth of the online game business around Chinese New Year, a historically robust period for the China online game market.”

The government asked corporations to remove content that was violent, was thought to praise luxury, or encouraged the worship of celebrities as part of a campaign to reduce juvenile gaming addiction.

According to a report by CNG, a government-backed industry statistics company, this caused game sales in China to drop more than 10% to 269.5 billion yuan ($40.1 billion) in 2022, the first loss since data became available in 2003.

The largest gaming business in the world, Tencent, revealed a 7% decline in third-quarter domestic gaming revenue in November of last year. Overall gaming revenue dropped by 4.4 per cent.

Tencent, the most valuable firm in China, saw a 24.7% decline in share price in 2022, but this year’s gains of 21% have virtually made up for those losses. The Hong Kong stock of NetEase is up 21.4% this year after falling 27.3% in 2022.

Requests for comment from Tencent and NetEase went unanswered.

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