November 30, 2021

China’s Tencent imposes controls to tackle gaming addiction among children

Chinese business & finance updates

Tencent has announced new restrictions on how long minors can play its online games after the Chinese internet group came under intense pressure from state media, which labelled gaming as “spiritual opium”.

In a social media post, the company said it was introducing the measures after “relevant authorities” requested greater protection of minors in gaming and for companies to carry out their “societal responsibility”.

Shares in Tencent, whose online games business generated Rmb39.1bn ($6bn) in the first quarter and accounted for 30 per cent of its total revenues, fell as much as 10.8 per cent in Hong Kong before paring losses to close down 6.6 per cent.

That left the stock down almost a quarter in the past month. The company’s market value has shed $400bn from its January peak.

The renewed volatility came after China’s tech stocks notched their worst month since the global financial crisis in July following an unprecedented regulatory campaign against tech sectors including education, ride-hailing and social media.

Tencent’s new restrictions, which will initially apply only to its flagship title Honor of Kings, will further reduce the duration that minors are allowed to spend gaming each day from 1.5 hours to 1 hour normally and from 3 hours to 2 hours on holidays. The company will prohibit anyone under the age of 12 from in-game spending and clamp down on minors playing on adult accounts.

Tencent also raised three proposals for the entire industry including strengthening systems to tackle gaming addiction and called for consideration of a complete ban for those younger than 12.

The announcement from the Chinese internet giant came after an article in the Economic Information Daily newspaper, which is run by state news agency Xinhua, said online video games had grown into “spiritual opium worth hundreds of billions”. One expert warned that “no industry . . . can develop in a way that destroys a generation”.

The article published on Tuesday morning did not mention Tencent by name but complained of widespread internet addiction among China’s youth. It quoted unnamed students as saying that some of their classmates spent as many as eight hours a day on Honor of Kings and warned that this “new type of electronic drug” was “advancing by leaps and bounds”. By the afternoon, the paper had deleted the article.

The historically charged comparison, likening Chinese video game makers to the foreign opium peddlers whose trade contributed to the disintegration of imperial China, pummelled Tencent’s shares even though minors contributed only 6 per cent of its China gaming revenue in the final quarter of last year.

A person close to the situation said the article had been intended to “test the waters” and may have been more extreme than regulators’ stance, prompting its removal. 

But Li Chengdong of tech-focused think-tank Haitun said Tencent had to react quickly as the article could represent the viewpoint of some officials. “The internet industry is under fire and companies are nervous,” Li said.

Gaming peers NetEase and XD finished Tuesday’s session down about 8 per cent each. China’s video games market was worth $43.1bn in 2020, according to Niko Partners, a research firm and consultancy.

The pressure on Tencent came on the heels of guidance published on Monday evening by the Chinese Communist party’s propaganda department and other regulators targeting rival tech group ByteDance.

Regulators said they would examine and amend online recommendation algorithms to ensure they did not disseminate the “wrong content”, raising the possibility that authorities could act to change the underlying programming that has helped Douyin, TikTok’s sister app in China, become a champion of the burgeoning short video industry.

The latest regulatory actions also weighed on shares in Shanghai and Shenzhen, which had steadied in recent days following a conference call in which China’s securities regulator sought to reassure global and domestic financial groups over Beijing’s relentless crackdown on the sector.

In recent weeks, Beijing has called for a new overseas listings regime, imposed data security reviews on companies seeking to sell shares abroad and outlawed the country’s $100bn private tutoring industry from making profits. This rendered the sector’s three biggest companies “virtually uninvestable”, according to JPMorgan analysts.

Analysts said the pressure on Tuesday from regulators and state media signalled a new challenge for Tencent, which controls the country’s ubiquitous WeChat social networking and payments app and had until recently come through the regulatory assault relatively unscathed.

That changed abruptly last week, when the company announced it was halting all user registrations for WeChat as it upgraded its security technology to “align with all relevant laws and regulations”. Tencent’s stock has dropped by almost a quarter over the past month.

“The timing of the article certainly raises concerns among investors due to the crackdown we’ve seen recently [on Chinese tech],” said Daniel Ahmad, a senior analyst at Niko Partners.

But he added that it was not the first time games had been compared to drugs in China. The article’s publication also followed rules that came into effect on June 1 that require companies to verify players’ ages and identities to limit how much time minors spend playing.

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