China’s New Online Game Regulations Send Shockwaves Through Industry

The Chinese government’s recent announcement of strict regulations for the gaming industry has stirred an atmosphere of heightened tension. While this move has once more stressed the perceived risks associated with doing business in China, it is notable that regulatory authorities are also grappling with significant declines in the stock prices of major domestic corporations. Industry insiders within China are closely monitoring the situation and interpreting it as an effort not to stifle the industry with excessive regulations but to exercise management and control over it.

According to reliable industry sources, on the 3rd of this month, China’s National Press and Publication Administration (NPPA) released a new draft regulation for online games on the 22nd of the previous month. This draft encompasses various provisions, notably prohibitions on forced in-game battles, restrictions on connection rewards and initial and ongoing payment incentives, measures to curb excessive consumption-promoting practices like speculation and auctions, and mandatory limits on in-game charges.

The regulations also covered probability-based items. They specify that the number of draws and probabilities must be reasonable, preventing the encouragement of excessive spending. Additionally, items acquired through chance-based mechanisms should be obtainable through direct purchases. Furthermore, the rules prohibit the sale of chance-based items to minors.

These provisions have led the gaming industry to interpret that they primarily target most revenue models utilized in mobile games. This is because the prohibition clause encompasses various models, including chance-based items and battle passes. Sales are expected to decline across most genres, with MMORPG and RPG games, known for their high per-user spending, likely to experience significant repercussions.

The shockwave of the regulatory announcement was massive. On the 22nd, when the draft was announced, the stock prices of Chinese game companies Tencent and NetEase plummeted by 12.35% and 24.60%, respectively, and the market capitalization of Chinese game companies evaporated over $85 billion in one day. In Korea, companies with high relevance to the Chinese market, including Krafton, Netmarble, and Wemade, also showed a downward trend.

In response to the increasingly negative sentiment in the market, the Chinese government has initiated steps to address concerns. Unusually, it has expressed a willingness to consider feedback from stakeholders. On the 25th, the government issued domestic license numbers for 105 national games. Additionally, reports from foreign media outlets, including the South China Morning Post, have emerged stating that Feng Xin, the director of the Central Propaganda Department of the Chinese Communist Party, was dismissed due to his perceived responsibility for market turmoil.

Analyzing these developments, the game industry perceives the Chinese government aims to establish a specific ambiance. Unlike the 2021 game regulations that seemed to target the sector, the current approach suggests a desire to foster growth while maintaining oversight and control over the market.

According to an industry insider, the primary focus appears to be on “charging” mechanisms to curb the practice of inducing excessive payments and fostering a healthier gaming culture. The insider noted that the approach does not seem as aggressive as previous measures aimed at stifling the industry. However, they emphasized the need for vigilance as the final decision is yet to be determined.

The academic community also offered similar opinions. Lee Jae Hong, president of the Korea Game Policy Society, interpreted it as an intention to manage the industry under government leadership as the Chinese game industry has increased. It is read as an intention to post-manage at a correction level rather than strong regulation from the reaction of stepping back in surprise at the market’s response to the regulatory proposal. However, he advised that there is a clear intention to prevent probability-based items and excessive BMs, so it is necessary to prepare for this.

President Lee said, “Unlike our country, which has always been regulatory towards games from the beginning, China has increased by fostering the game industry more capitalistically than capitalist countries, so it is interpreted as entering post-management under government leadership. However, as there are controversies over promoting gambling worldwide regarding probabilistic items and the Chinese government intends to regulate this, the domestic game industry needs to find new BMs and IPs (intellectual property rights).”

By. Dong Hwi Byeon