Tencent, China tech stocks dismiss sign of easing curbs on gaming

SHANGHAI: Shares in Tencent Holdings Ltd and its Chinese rivals shrugged off signs Beijing is trying to tamp down a backlash against harsh new regulations that triggered an US$80bil rout.

Beijing has removed a top official who helped oversee China’s gaming industry, Reuters and the South China Morning Post reported.

Feng Shixin lost his job as head of the publishing unit of the Publicity Department, which runs the country’s gaming regulator, Reuters reported, citing sources briefed on the matter.

His departure was linked to the surprise release of draft rules days before Christmas, which spooked investors and incited outraged comments from industry players.

The National Press and Publication Administration, the gaming watchdog, has since softened its tone, pledging to review its more controversial mandates, including an unquantified cap on in-game spending.

Yet some investors remain traumatised by the Big Tech crackdown of 2021, when unpredictable regulations from myriad Chinese agencies derailed sectors from eCommerce to entertainment.

Tencent and its smaller rival, NetEase Inc, have recouped some of their losses but remain down from just before the holidays. They slid in early trading before recovering in Hong Kong yesterday, hurt also by a broader tech selloff in the United States.

The official’s removal “shows Beijing has become more concerned about economic sentiment after the post-Covid rebound proved much weaker than expected and huge capital outflows from the equities market”, said Steven Leung, executive director at UOB Kay Hian.

“It will reduce the chance of further panic selling in the sector but may not attract new liquidity buying because the change in such a short period of time means policies remain uncertain.”

Robert Lea, a Bloomberg analyst, said confidence in the outlook for Tencent and NetEase may rebound further after the South China Morning Post reported (quoting unnamed sources) that a key official involved in overseeing China’s video-gaming industry had stepped down.

“Sentiment was hit by the share-price ‘flash crash’ of Dec 22, but the recent more conciliatory tone from China’s National Press and Publication Administration supports our view that the basic outlook for Tencent’s games business is largely unchanged, as rising regulatory oversight isn’t new.”

Feng represented his agency at past events organised to discuss regulatory efforts, including licensing and real-name verification, Reuters reported.

His removal may not have been enough to reverse sentiment in a market on edge over regulators’ intentions for the tech sector and an uncertain economy.

The sweeping gaming restrictions, which caught industry players and investors off guard on the final trading day before Christmas, reminded many of the brutal tech-sector crackdown of 2021.

That year, Beijing abruptly imposed curbs on a host of tech-related sectors, reining in Jack Ma-backed Ant Group Co and Alibaba Group Holding Ltd while decimating the online education industry by declaring profits illegal.

Apart from the timing, investors and industry executives reacted poorly to the vagueness of the draft rules, which encompassed caps on the amount each player can spend within a game, a ban on rewards for frequent log-ins and forced player duels, and even a prohibition on content that violates national security.

The plethora of restrictions came at the tail end of a year during which Beijing had signalled a willingness to ease off.

Officials in the past few months have encouraged e-sports as an engine for the post-Covid economy.

Xi Jinping himself attended the opening ceremony of the 19th Asian Games in Hangzhou, which featured professional gaming among the medals up for grabs for the first time.

In December 2022, Tencent secured a green light for a clutch of major releases, including Valorant and Pokemon Unite, a milestone that reinforced hopes China was easing its two-year crackdown. — Bloomberg