China gaming crackdown: increased speculation over extended freeze on new video game approvals weighs heavily on industry

Regulator the National Press and Publication Administration has not published a list of approved new video games since July last year
The licensing process has now been in limbo for about seven months, marking the longest freeze in approvals since a nine-month regulatory hiatus in 2018

Video gaming

Yaling Jiangin Shanghai

Published: 9:00pm, 22 Feb 2022

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Beijing’s lack of guidance on the resumption of new video game approvals is fuelling speculation of an extended licensing freeze, which could lead to increased market volatility for Chinese gaming stocks, more job cuts in the industry and a greater push by affected companies to expand into overseas markets.

The National Press and Publication Administration (NPPA), which is in charge of licensing video games in China, has not published a list of approved new titles since the end of July. The licensing process has now been in limbo for about seven months, marking the longest freeze in approvals since a nine-month regulatory hiatus in 2018.

“There has been no reliable news on the date of resumption,” said Liao Xuhua, a senior analyst at research firm Analysys International. “The reasons [behind the suspension] are said to be adjustments in content approval and processes, but there is no way to know what the final results will be.”

Chinese video gaming stocks have been hit hard by the uncertainty. Shares of Tencent Holdings, NetEase and Bilibili slumped in Hong Kong on Monday and the rout extended into Tuesday amid increased speculation that the suspension of new game approvals will be extended. Shares of Tencent, which runs the world’s biggest video gaming business by revenue, declined 0.1 per cent on Tuesday after suffering a 5.2 per cent beating on Monday.

The slowdown in approvals for new games forms part of Beijing’s measures to tackle gaming addiction among young people, according to a South China Morning Post report in September, citing people with knowledge of the matter.

While the NPPA has continued to accept new video game licence applications, the regulator has still not made any official comment on the state of the process. Its last list of licensed games was released on July 22.

The situation is likely to provide more uncertainty ahead for all companies involved in China’s video gaming industry, which is the world’s largest.

The NPPA used to approve dozens of video games developed by Chinese studios each month. It licensed 592 games in the first half of 2021. That was more than the 575 approved in the first half of 2020, but fewer than the 850 approvals in the same period in 2019.

“The market will have to make adjustments for a longer period of time,” Liao of Analysys said. “It is inevitable that there would be fewer mid-sized to small gaming companies to remain in business.”

Thousands of small studios and video gaming-related firms – including those involved in merchandising, advertising and publishing – went out of business over the past several months, following the NPPA’s freeze on new game approvals.

Larger firms such as TikTok owner ByteDance, online search giant Baidu and Tanwan Games trimmed their losses by laying off a number of employees involved in the video gaming segment of their operations.

Meanwhile, industry leaders Tencent and NetEase are putting more resources in overseas markets. Shenzhen-based Tencent, for example, plans to open a new video game development studio in Singapore under subsidiary TiMi Studio Group.

Total video gaming revenue in mainland China was forecast to reach US$46.98 billion in 2021, which is around 1 per cent or US$460 million lower than the earlier prediction made by gaming sector-focused research firm Niko Partners. This marked the first time in 20 years that Niko Partners has cut its forecast for China, citing the freeze on new game approvals and increased regulation on young gamers as contributing factors.

Last August, the NPPA issued new rules limiting the gaming time for players aged under 18 to between 8pm and 9pm only on Fridays, Saturdays, Sundays and statutory holidays. This marked the country’s most stringent measure yet to tackle video gaming addiction among young people.

In a separate industry report, the state-backed Game Publishing Committee of the China Audio-Video and Digital Publishing Association said the country’s total gaming market revenue last year reached 296.5 billion yuan (US$46.81 billion), up 6.4 per cent from 2020. Still, that figure was down from the 20.7 per cent annual growth recorded in 2020.

The NPPA’s licensing freeze does not only affect the development of new video games in China, but also those for overseas markets, according to Ding Jiaqing, chief executive at Shanghai-based Senligames, a studio focused on the Southeast Asia market.

“This is a terrible situation because China-based game developers are forced to reduce their expenses and personnel for development, which may lead to a shortage of talent working on games for overseas markets,” Ding said.

He said Senligames recently cut 70 per cent of its workforce, as the firm shifted its focus last December to developing metaverse-related technologies, including a 3D game engine, cloud computing algorithms and motion capture. He indicated that other companies with research and development capabilities should consider a shift, too.

“The government’s thinking on this [licensing freeze] is short-sighted,” Ding said. “They do not care about the positive cultural impact of Chinese games abroad and the expenses related to accumulating technical know-how for the metaverse.”