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Tencent

China’s gaming regulator to restrict new games amid concerns over children’s health

Authorities have not approved any new game licenses since March, contributing to the slowest first half growth in China’s games industry in at least a decade

PUBLISHED : Friday, 31 August, 2018, 9:20am
UPDATED : Thursday, 06 September, 2018, 3:34pm

China’s new gaming regulator has been revealed after a months-long halt on approvals for new videos games triggered by a massive government shake-up. The State Administration of Press and Publications, directly under the publicity department of the Chinese Communist Party, will take over the role, highlighting the Party’s tightening grip over the gaming industry.

The revamp was confirmed for the first time in a document published Thursday on the website of China’s education ministry, which outlines how China would improve myopia among children and teenagers, under the direction of Chinese president Xi Jinping.

A section in the document stated that the organisation, sometimes referred to as GAPP for General Administration of Press and Publications, will “implement controls on the total number of online video games, control the number of new video games operated online, explore an age-appropriate reminder system in line with China’s national conditions, and take measures to limit the amount of time minors [spend on games].” The document was co-issued by the education ministry, the GAPP and six other government departments.

All games, even those offered for free, will be required to obtain a license to get published in China, the world’s largest gaming market, worth an estimated US$38 billion in revenue this year. However, authorities have not approved any new game licenses since the end of March, contributing to the slowest first half growth in the country’s games industry in at least a decade, according to data from researcher CNG.

China has the most rigorous game approval process of any major market, an extension of broader restrictions on television, newspapers and the internet.

Tencent, Chinese tech stocks are crashing on profit squeeze

Amid the regulatory hiatus, Chinese gaming giant Tencent suffered its first profit decline since 2005 on lower gaming revenue. After the education ministry’s latest announcement, Tencent’s Hong Kong-listed shares closed down 4.9 per cent to HK$340 (US$43) while rival Chinese games company NetEase fell 7.2 per cent on Nasdaq overnight. Tencent’s shares have fallen 21 per cent so far this year.

“We believe limitation on the number of games and new titles in operation may affect overall industry growth given potentially longer approval cycles,” Jefferies analysts Karen Chan and Nelson Cheung wrote in a note. “ That said, this will likely accelerate market consolidation toward top developers and quality games at the expense of smaller players.”

The approval of new game licenses was originally under the State Administration of Press, Publication, Radio, Film and Television - known as SAPPRFT, or SARFT for short - an all-encompassing media regulator under China’s cabinet.

Earlier this year China announced a massive government overhaul which dismantled the top media regulator and replaced it with three new bodies responsible for the press, film, and radio and television sectors, respectively. While the new National Radio and Television Administration – as it is called – remains under the cabinet, the new press and film regulators are under the control of the Communist Party’s publicity department. The restructuring is in line with the broader goal of giving the Party more authority over the economy, foreign affairs and cultural policy, among others.

Previously the new radio and television administration was believed to be in charge of gaming licensing – a responsibility that on Friday was still listed on the website it inherited from the now-dismantled SAPPRFT. When the South China Morning Post called the phone number listed on the website, a staffer who answered confirmed that the approval of new games is now under the GAPP, the Party’s press regulator. But she declined to comment on the gaming license process.

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China has not provided any public explanation for the game approval freeze, which has prompted debate over whether it is a temporary halt due to the regulatory reshuffling or whether the government is planning a broader crackdown on games.

While the new document issued by the education ministry clarifies who is now in charge, analysts said that the stricter rules – including measures to cap license numbers and the amount of time minors can play games – will add further uncertainty to the gaming market.

Chinese president Xi Jinping has publicly spoken about the need to help children’s eyesight. Myopia among students is more common and is affecting children at younger ages, Xi said, according to the Xinhua News Agency this month. He called for the nation to address the problem.

Additional reporting by Bloomberg