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Chinese Regulatory Actions Impact Global Gaming Shares

Chinese gaming and related shares experienced a significant decline due to the continued regulatory crackdown affecting various sectors in China, including online platforms, entertainment, education, and real estate. This regulatory squeeze has weighed on companies like Tencent Holdings, NetEase, and their global counterparts, leading to sharp drops in share prices.

China Temporarily Slows Game Approvals

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The South China Morning Post initially reported that China had temporarily suspended approvals for new online games, which contributed to the decline in Tencent Holdings and NetEase shares. However, the publication later corrected the story, stating that China had temporarily slowed down, rather than suspended, the approval process for new online games.

Share Price Decline

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As a result of the confusion and regulatory concerns, shares in Tencent Holdings closed more than 8% lower, while NetEase saw an even greater decline of over 11%. This drop had a ripple effect on the global gaming industry, with U.S. gaming stocks, including Activision Blizzard Inc, Electronic Arts, and Take-Two Interactive Software, also experiencing declines of approximately 1% to 3%.

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European Gaming Stocks Impacted

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In Europe, France’s Ubisoft fell by as much as 2.6%, while Prosus, which holds nearly 29% of Tencent, saw a 5% decline in Amsterdam trading.

The Strategy to Slow Approvals

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Reports suggest that the strategy to slow down game approvals emerged after a meeting between Chinese authorities and gaming firms, including Tencent Holdings and NetEase. This move aims to ensure stricter adherence to new rules aimed at curbing gaming addiction among minors.

Regulatory Scrutiny Continues

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State news agency Xinhua reported on the same meeting, indicating that its focus was on implementing rules to combat gaming addiction among minors. China had previously imposed a ban on individuals under 18 playing video games for more than three hours a week. Both Tencent and NetEase expressed their commitment to complying with these regulations.

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Long-Term Regulatory Pressure

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Industry experts suggest that the regulatory pressure on the gaming sector is likely to persist for years. The Chinese government’s approach to online gaming remains strict, prompting investors to diversify their portfolios in response to these uncertainties.

Impact on U.S. Gaming Companies

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While China represents less than 10% of revenue for U.S. gaming companies like Activision, Take-Two, and EA, it remains a crucial market that these companies aim to expand into. The slowdown in game approvals could affect their expansion plans.

Caution Regarding the ‘Metaverse’

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Chinese state media warned investors against blindly investing in Chinese stocks related to the “metaverse,” a virtual technology-based shared space. This caution followed a surge in stocks perceived as developing the metaverse, leading to declines in related stock prices.

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Broad Regulatory Measures

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The ongoing regulatory measures in China have also targeted anticompetitive practices among online platform companies and sought greater control over data generated by the industry. Additionally, the transportation ministry has announced plans to crack down on illegal activities in the ride-hailing industry and non-compliant vehicles and drivers on online platforms.

Global and Domestic Investors Affected

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The Chinese regulatory squeeze has not only impacted domestic markets but also international investors who are closely monitoring the developments. It reflects China’s efforts to address perceived excesses in the rapid growth of its new economy sectors in recent years.

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