Tencent stocks are falling after Chinese regulators convene gaming companies

GUANGZHOU, China – Shares of Tencent and Netease fell on Thursday morning after Chinese regulators summoned them and other gaming companies for an interview, reminding them of restrictions on play time for children.

The Chinese propaganda department, cyberspace regulator and other authorities said they would “seriously treat” any violation of its rules.

Shares of Tencent fell more than 5% in morning trading in Hong Kong, while NetEase fell more than 6%.

Regulators reminded gaming companies that they must limit play time for children under 18. According to the rules announced last month, children cannot play online games for more than 3 hours a week, and only for specific hours and days. The Chinese government has long been concerned about the impact of gambling on children’s physical and mental health.

Gaming companies should also control their content, including a ban on “illegal” content, such as pornography, according to regulators.

Authorities also said unfair competition and monopolies must be avoided. China’s market regulator said last month that Internet companies should avoid unfair competition and issued draft rules aimed at such practices.

Companies should also change game designs to get addicted to users, they said.

In response, gaming companies said Thursday they were trying to comply with regulators’ guidelines.

“We believe in healthy play and take the physical and mental health of minors very seriously. We appreciate the guidance and instruction of relevant regulators and will work hard to fully comply with all rules related to youth gambling addiction and content regulation. “Tencent said in a statement to CNBC.

NetEase also added that it will comply, saying in a statement to CNBC that it will “strictly follow the rules and instructions on measures against addiction for minors in games.”

“We will continue our efforts to provide higher quality gaming and promote a healthy and responsible gaming environment for younger players, while trying to build and promote a healthy gaming environment in China,” the firm told CNBC.

The warnings from the meeting with regulators don’t seem too new. Instead, they repeat previous restrictions on limiting playing time for minors, removing content that authorities deem “illegal,” and attempting to stop unfair competition and monopolies.

However, authorities ‘comments on how to get companies to adapt game designs could raise fears about changes in their business models that depend on players’ spending money.

Chinese regulators have long been concerned about gambling addiction among young people.

Last month, an affiliate of the official Xinhua newspaper published an article calling the games “opium.” The piece was later withdrawn and republished with references to the removed drug, but it sparked fears among investors that additional regulation of the games could be reached.

The industry has already gone through episodes of regulation over the years. In 2018, regulators froze game approvals over concerns about children’s sight.

The game giants have said they will not be unduly affected by the continued restrictions on children’s play time. Tencent said only a small amount of gaming revenue comes from younger players in China. In the second quarter, 2.6% of gross gaming revenue in China was derived from players under 16 years of age.