Gaming Industry: Cat and Mouse Game in China Continues

Chinese government recently dropped a bombshell on the country's young gamers. As of 1 September 2021, users under the age of 18 are limited to only one hour of online gaming time: on Fridays, Saturdays and Sundays between 8-9 P.M.

The stringent rule adds to already tightening gaming policies for minors, as the government blames video games for causing myopia, as well as deteriorating mental and physical health. The joke going around is that working parents will have an even harder time keeping their kids occupied.

A few aspects of the new regulation are worth unpacking. For one, the new rule was instituted by the National Press and Publication Administration (NPPA), the regulatory body that approves gaming titles in China and that in 2019 froze the approval process for nine months, which led to plunges in gaming stocks like Tencent.

It's curious that the directive on playtime came from the NPPA, which reviews gaming content and issues publishing licenses. Like other industries in China, video games are subject to regulations by multiple authorities: NPPA; the Cyberspace Administration of China (CAC), the country's top internet watchdog; and the Ministry of Industry and Information Technology, which oversees the country's industrial standards and telecommunications infrastructure.

As analysts long observe, the mighty CAC, which sits under the Central Cyberspace Affairs Commission chaired by President Xi Jinping, has run into "bureaucratic struggles" with other ministries unwilling to relinquish power. This may well be the case for regulating the lucrative gaming industry.

For Tencent and other major gaming companies, the impact of the new rule on their balance sheet may be trifling. Following the news, several listed Chinese gaming firms, including NetEase and 37 Games, hurried to announce that underage players made up less than 1 percent of their gaming revenues.

Tencent saw the change coming and disclosed in its Q2 earnings that "under-16-year-olds accounted for only 2.6 percent of its China-based grossing receipts for games and under-12-year-olds accounted for just 0.3 percent."

These numbers may not reflect the reality, as minors have long found ways around gaming restrictions, such as using an adult's ID for user registration (just as the previous generation borrowed IDs from adult friends to sneak into internet cafes). Tencent and other gaming firms have vowed to clamp down on these workarounds, forcing kids to seek even more sophisticated tricks, including using VPNs to access foreign versions of gaming titles. The cat and mouse game continues.