China eases gaming crackdown, sending tech stocks upward

The news: On Tuesday, China approved a slew of video game titles, injecting some vigor into its tech sector.

• A government regulator approved publishing licenses for 60 online games, the most since July 2021, per South China Morning Post.
• Approved titles included miHoYo’s Keqier Frontier, Perfect World Games’ Black Cat Anecdote Society, and Hero Entertainment’s Dynasty Legends 2.
• However, titles from major game developers Tencent and NetEase were conspicuously absent from the list of approvals.
• In 2017, China approved a record-high 9,000 new games. In 2020, 1,411 games got the greenlight, and in 2021, that number dropped to 755 games.
• This year’s first round of game approvals began in April with 45 new titles, which marked the end of a nine-month approval freeze that Beijing enacted to curb gaming addiction.
• Last year, officials also restricted gaming for minors to three hours a week in addition to ongoing censorship of content deemed “electronic heroin.”

What it means: The game greenlighting indicates a partial return to normalcy for the country that leads the world in gaming revenue. Beijing’s easing of its hardline gaming stance has helped revive its languishing tech sector.

• Following Tuesday’s approvals, Chinese tech stocks rose, with Tencent up 4.7% and NetEase up 2.9% despite those companies’ titles being excluded, per Tech Xplore.
• Additionally, the gaming news increased Alibaba stocks by over 8% and JD.com by more than 4%, per Shine.
• Facing an 11-month-and-counting publishing dry spell, Tencent shares had fallen 34% since July 2021, while NetEase was down 7.5% over the same period, per SCMP.

The bigger picture: The game approvals are part of a recent trend of China officials easing regulations. While it bodes well for the economy, the outlook for the country’s gaming industry is uncertain.

• The game licensing freeze resulted in 14,000 companies shutting down. Beijing’s mercurial policies will likely restrain developers’ investments in new titles and make others wary to start or resume business.
• In addition, content censorship still appears to be in place, which could curb creativity, reducing international appetite for the country’s titles and Chinese gamers’ access to international titles.
• As the number of gamers in China grew by 0.22% YoY in 2021, per SCMP, continued restriction on youth playtime could have a further negative effect on the industry.