Has anyone heard of the geopolitical expert Peter Zeihan? Besides showing up everywhere following his prediction about the Russian invasion of Ukraine coming true, he maintains that President Xi in the People's Republic of China has set up a cult of personality in which decision making, to use my term, has turned flaky. The bureaucrats don't really know what President Xi wants and, worse yet, are afraid to ask. Apparently the flaky decisions include those involving video games.
On 22 December 2023, the Chinese Communist Party's (CCP) National Press and Publication Administration announced regulations to curb spending in and playing video games. Reuters had more:
The new rules revealed on Friday are the most explicit yet aimed at curbing in-game spending. Besides banning reward features, games are also required to set limits on how much players can top up their digital wallets for in-game spending.
"The removal of these incentives is likely to reduce daily active users and in-app revenue, and could eventually force publishers to fundamentally overhaul their game design and monetisation strategies," said Ivan Su, an analyst at Morningstar.
Games are also banned from offering probability-based lucky draw features to minors, and from enabling the speculation and auction of virtual gaming items.
But the new rules included a proposal that is widely expected to be welcomed by the industry, requiring regulators to process game approvals within 60 days.
Meanwhile, Chinese regulators announced on the same day licences for 40 new imported games for domestic releases, seen as a signal of Beijing's willingness to allow more games in the country, despite the draft rules on game spending.
The new rules also reflect Beijing's concerns over user data, requiring game publishers to store their servers within China.
Investors did not take kindly to the news, with shares of Tencent falling as much as 16% and NetEase falling as much as 25% throughout the day. In Europe, investment firm Prosus, which owns 26% of Tencent, fell 14.2% in early trading. One investor interviewed by Reuters summed up the situation from the perspective of the money people.
"It's not necessarily the regulation itself - it's the policy risk that's too high," said Steven Leung, executive director of institutional sales at broker UOB Kay Hian in Hong Kong. "People had thought this kind of risk should have been over and had started to look at fundamentals again. It hurts confidence a lot."
The crackdown on video games at one point made sense, in a Chinese way, as the concern was on making sure young men were fit to serve in the military. And China's crackdown on video games, beginning in 2021, led to an actual decline in the video game market in China in 2022.
But that was 2-3 years ago. The World Bank is forecasting the worst economic growth in the People's Republic in over 30 years.
China also is weighing on the global outlook as its growth slows to a forecast 4.5% in 2024. That marks its slowest expansion in over three decades outside of the pandemic-affected years of 2020 and 2022.
The forecast was cut 0.1 percentage point from June, reflecting weaker consumer spending amid continued property sector turmoil, with 2025 growth seen slowing further to 4.3%.
"More generally though, weaker growth in China reflects the economy returning to a path of weakening potential growth due to an aging and shrinking population, rising indebtedness that constrains investment and in a sense, narrowing opportunities for productivity to catch up," [World Bank Deputy Chief Economist Ayhan] Kose told reporters.
In the People's Republic, economic growth is economic growth. More growth is good for the stability of President Xi's government. So possibly as no surprise, the government reigned in the National Press and Publication Administration. According to Reuters, five days later the agency "struck a more conciliatory tone, saying it would improve them by 'earnestly studying' public views." In the same report published on 2 January, Reuters broke the news that at least one head was figuratively rolling in Beijing over the move.
Feng Shixin was removed last week from his position as head of the publishing unit of the Communist Party's Publicity Department, the sources said. The department oversees the National Press and Publication Administration (NPPA) which in turn regulates China's vast video games sector.
On 7 January, The Financial Times published a report with official confirmation of Shixin's ouster.
Feng Shixin was a senior figure who had been seen at events discussing video game approvals and real-name verification requirements for gamers. He was removed from his position for not consulting top economic supervisors or incorporating the opinions of key gaming companies before releasing the draft, said two people close to the regulator. The propaganda department did not respond to a request for comment.
“Although the rising regulatory power was widely anticipated in the gaming industry, this proposal was still shocking because there was insufficient prior communication and the terms were extremely stringent,” said a person with direct knowledge of the matter. Reuters first reported Feng’s firing.
“We were told before that most of the regulation would be focused on minors. However, many of the strict measures in the final draft turned out to control all users, making us really nervous,” said an executive from a gaming start-up who did not wish to be named.
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| Stock prices thru the close of business 9 Jan 24 |
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