Tencent Loses Over $43 Billion in Market Value After China Proposes New Online Gaming Rules

In a surprising turn of events, Tencent, a leading player in the global online gaming market, experienced a substantial market value loss of approximately $43.5 billion on Friday following the unveiling of new regulatory guidelines by China. The draft rules, presented by China’s National Press and Publication Administration, sent shockwaves through financial markets, impacting shares of major online gaming entities, including Tencent, NetEase, and Bilibili.

The regulatory move, aimed at curbing excessive gaming and spending, prompted concerns among investors about the viability of existing business models reliant on incentives and rewards to attract and retain users. Brian Tycangco, an analyst at Stansberry Research, commented that the regulations, while well-intended, cast doubt on the sustainability of current industry practices.

Tencent, headquartered in Shenzhen and renowned for its ownership of WeChat, saw its Hong Kong-listed shares plummet by around 12.4%, closing at HK$274, marking its lowest closing level since November 2022. NetEase, which derives 80% of its third-quarter revenue from domestic online gaming, faced a significant drop of 24.6%, closing at HK$122. The losses incurred on Friday resulted in the erosion of about 115.1 billion Hong Kong dollars ($14.7 billion) from NetEase’s market capitalization.

Bilibili, a prominent social media site with a notable share of revenue from Chinese domestic gaming, witnessed a 9.7% decline in shares, closing at HK$80.30, the lowest since November 2022. The drop amounted to approximately 2.4 billion Hong Kong dollars ($307 million) off Bilibili’s market capitalization.

While the new guidelines released by China’s gaming regulator seek to address concerns related to high-value transactions in virtual entities and irrational consumption behaviour, industry leaders remain optimistic. Vigo Zhang, Vice President of Tencent Games, stated that the measures provide instructive guidance while supporting the online gaming industry.

This development comes amid a broader regulatory landscape in China’s technology sector, following a crackdown that commenced in late 2020. The recent guidelines add another layer of complexity to the regulatory environment, causing investors to seek clarity and better coordination between industry players and regulators.