Tencent, China Tech Stocks Dismiss Sign Of Game Curbs Easing

(Bloomberg) -- 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 $80 billion 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 participants.

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 traumatized by the Big Tech crackdown of 2021, when unpredictable regulations from myriad Chinese agencies derailed sectors from e-commerce to entertainment. 

Tencent and 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 on Wednesday, hurt also by a broader tech selloff in the US.

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 on the sector but may not attract new liquidity buying, because the change in such a short period of time means policies remain uncertain.”

Read More: Tencent Leads $80 Billion Rout as China Rekindles Crackdown Fear

What Bloomberg Intelligence Says

Confidence in the outlook for Tencent and NetEase may rebound further after the South China Morning Post reports, quoting unnamed sources, that a key official involved in overseeing China’s video-gaming industry has 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 the basic outlook for Tencent’s games business is largely unchanged, as rising regulatory oversight isn’t new.

- Robert Lea, analyst

Click here for the research.

Feng has represented his agency at past events organized to discuss regulatory efforts, including in areas such as 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, 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 signaled a willingness to ease off. Officials in past months had encouraged esports 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 and a milestone that reinforced hopes China was easing its two-year crackdown. 

“If the story is accurate, it will send a signal that what happened was not a reversal of policy direction to more tightening in the mobile and online gaming industry and may give investors some relief on policy stability and certainty,” Redmond Wong, a market strategist at Saxo Capital Markets in Hong Kong. “But overall, investors are still skeptical. The news is positive but is not big enough to move the needle or the big picture.”

(Updates with market action from the first paragraph)

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