Tencent shares plummet on fears of China gaming crackdown

SHANGHAI (REUTERS) – China’s Tencent Holdings said on Tuesday (Aug 3) it would further curb minors’ access to its flagship video game, hours after its shares were battered by a state media article that described online games as “spiritual opium”.

Economic Information Daily cited Tencent’s Honour Of Kings in an article in which it said minors were addicted to online games and called for more curbs on the industry. The outlet is affiliated with China’s biggest state-run news agency, Xinhua.

The broadside reignited investor fears about state intervention after Beijing had already targeted the property, education and technology sectors to curb cost pressures and reassert the primacy of socialism after years of runaway market growth.

“They don’t believe anything is off limit and will react, sometimes overreact, to anything on state media that fits the tech crackdown narrative,” said Mr Ether Yin, partner at Trivium, a Beijing-based consultancy.

China’s largest social media and video game firm saw its stock tumble more than 10 per cent in early trade, wiping almost US$60 billion (S$81 billion) from its market capitalisation.

The stock was on track to fall the most in a decade before trimming losses after the article vanished from the outlet’s website and WeChat account on Tuesday afternoon. The article later reappeared later in the day with the historically loaded term “spiritual opium” removed and other sections edited. The stock ended down 6.1 per cent.

Shares of European and United States gaming companies also took a hit.

Activision Blizzard, which has the largest exposure to Chinese markets among its US peers and was due to report after the closing bell, was down 3.8 per cent.

Electronic Arts, the company behind Sims, was down 2.8 per cent. Take-Two Interactive Software, which gave an annual forecast late on Monday that disappointed investors, was down 7.6 per cent.

Shares of Amsterdam-listed Prosus, which holds a 29 per cent stake in Tencent, fell 6.9 per cent, while European online video gaming stocks Ubisoft and Embracer Group fell about 5 per cent and 3.7 per cent, respectively.

In the original article, the newspaper had singled out Honour Of Kings as the most popular online game among students who, it said, played for up to eight hours a day.

” ‘Spiritual opium’ has grown into an industry worth hundreds of billions,” the newspaper said. “No industry, no sport, can be allowed to develop in a way that will destroy a generation.”

Opium is a sensitive subject in China, which ceded Hong Kong island to Britain “in perpetuity” in 1842 at the end of the First Opium War, fought over Britain’s export of the drug to China where addiction became widespread.

Tencent in a statement said it will introduce more measures to reduce minors’ time and money spent on games, starting with Honour Of Kings. It also called for an industry ban on gaming for children under 12 years old.

The company did not address the article in its statement, nor did it respond to a Reuters request for comment.

The article also hit rivals’ shares. NetEase dropped more than 15 per cent before paring losses to end down 7.77 per cent. Game developer XD fell 8.1 per cent and mobile gaming company GMGE Technology Group dropped 13.59 per cent.

Outside of gaming, investors were also caught off guard by the State Administration For Market Regulation on Tuesday saying it would investigate auto chip distributors and punish any hoarding, collusion and price gouging. The semiconductor stock index subsequently fell more than 6 per cent.

Child Well-being

The reposted Economic Information Daily article, in a shift of tone, said that the authorities, game developers and families had to work together to combat child addiction to online video games, and parents had to be responsible for supervision.

Chinese regulators have since 2017 sought to limit the amount of time minors spend playing video games and companies, including Tencent, already have anti-addiction systems that they say cap young users’ game time.

In practice, it is difficult for companies to stop children accessing games online because users can lie about their age.

But the authorities have in recent months placed fresh focus on protecting child well-being, and said they want to further strengthen rules around online gaming and education. Last month, they banned for-profit tutoring in core school subjects, attacking China’s US$120 billion private tutoring sector.

That added to other regulatory action in the technology industry, including a ban on Tencent from exclusive music copyright agreements and a fine for unfair market practices.

At one point on Tuesday, Tencent was briefly dethroned as Asia’s most-valuable firm by market capitalisation by chipmaker Taiwan Semiconductor Manufacturing Co.