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Tencent, NetEase shares rebound after China regulator’s assurance on new online gaming rules

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A mobile phone is displaying the screen of Tencent Games company’s stock plunge in Suqian, Jiangsu Province, China, on December 22, 2023.

Costfoto | Nurphoto | Getty Images

Chinese online gaming stocks rose Wednesday, recovering some losses from the previous session after the country’s top gaming regulator pledged to “further modify and improve” draft rules aimed at curbing excessive online gaming and spending.

On Saturday, China’s National Press and Publication Administration also vowed in a WeChat statement to “carefully study” the concerns of stakeholders — a day after fresh rules that it proposed sank the Hong Kong-listed shares of Tencent, NetEase and Bilibili.

The regulator, which also controls the publication of new games in the world’s largest online gaming market, then said Monday that it approved more than 100 new domestic games, after saying Friday that it approved 40 imported games.

“We believe these fire-quenching measures may help to slightly ease market concerns, but they are not enough to remove the overhang caused by the draft regulation,” Nomura analysts said in a Tuesday note.

On Wednesday, NetEase shares surged as much as 14% in early trading as Hong Kong markets returned from the Christmas holidays. NetEase eventually ended Wednesday up 11.9%. The stock had plunged about 25% on Friday.

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NetEase shares in Hong Kong

Rival Tencent climbed 4% on Wednesday after shedding more than $43 billion in market value in Friday’s rout. Bilibili, a social media site that derived 17.1% of its total third-quarter net revenue from Chinese domestic gaming, jumped 6.7%. Its shares had tumbled about 10% on Friday.

Wednesday’s rebound in share prices though only recouped a fraction of the steep losses recorded Friday, before Hong Kong markets closed for a four-day Christmas long weekend.

Lingering concerns

In its statement on Saturday, China’s top online gaming regulator said it would further solicit the opinions of the various stakeholders to “further modify and improve” the draft rules released, specifically mentioning Articles 17 and 18 in the document that was released Friday.

In effect, these two articles underscore a key aim to prohibit incentivizing daily sign-ins for games, among other revenue-generating practices.

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Tencent Holdings shares in Hong Kong

These two articles would ban online games from forcing players into duels with other players, while also requiring owners of online games to abstain from providing or condoning high-value or expensive transactions in virtual entities whether by auction or speculative activity, among other things.

Daily login rewards would also be banned, while recharging limits must be imposed with pop-up warnings issued to users who display “irrational consumption behavior,” the National Press and Publication Administration said in the draft rules.

These latest draft rules come as the broader China technology industry was just emerging from a broader crackdown that started in late 2020.

— CNBC’s Evelyn Cheng contributed to this story.

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