China's NPPA Retracts Gaming Guidelines, Boosting Tencent and NetEase Stocks

China's gaming regulator has deleted from its website guidelines it suggested last month to limit spending and prizes for playing video games, according to Reuters, in a move that lifted gaming firm stock.

China Regulator Pulls Draft Video Game Rules From Online

The link to the draft guidelines on the National Press and Publication Administration's (NPPA) website was down as of Tuesday morning, despite having functioned on Monday.

The comment period for the restrictions, which triggered market upheaval when initially announced, ended on Monday.

Analysts characterized the withdrawal as surprising, with some speculating on a future adjustment. The NPPA did not immediately reply to a request for comment on the reasons for the removal.

In a note to clients read by Reuters, Xiaoyue Hu, an analyst at Haitong Securities, said the removal of the statement might imply "there might be further changes in the new measures."

Hu stated that past regulatory initiatives seeking feedback had a track record of remaining on the government's websites even after the consultation time had finished.

In early trade, shares of Tencent Holdings (0700.HK), the world's largest gaming business, and its closest rival, NetEase (9999.HK), climbed as high as 6% and 7%, respectively. The two businesses' shares were still up more than 4% at midday, compared to a 2.4% rise in Hong Kong's Hang Seng Index (.HSI).

When the draft guidelines, which recommended limiting online game expenditure, were revealed, investors panicked, wiping off about $80 billion in market value from China's two largest gaming businesses.

China's NPPA Signals Regulatory Revisions Amid Investor Concerns

Analysts also stated at the time that the plans placed the possibility of future regulation change back to the forefront in the minds of investors, undermining confidence at a time when the government is attempting to increase private-sector investment to stimulate a sluggish economy.

However, five days later, the NPPA adopted a more conciliatory tone, stating that it would improve them by "earnestly studying" public opinion. Earlier this month, Reuters reported that China dismissed a gaming regulatory officer from his position, citing the regulations.

Articles 17 and 18 of the new rules were among the most problematic, according to experts. The NPPA expressed worry about those articles in December, and experts suggested they may be eliminated or amended.

Article 17 tries to restrict video games from pressuring players into battle, which puzzled the industry as combat is the fundamental mechanic of the bulk of modern multi-player games.

Article 18 requires games to set a spending limit for players and prohibit elements that encourage players to spend in the game.

"Our base-case view expects the government to remove Articles 17 (prohibition of mandatory player-versus-player) and 18 (imposing spending limit) from the final rule," Ivan Su, an analyst at Morningstar, told Reuters.

According to Charlie Chai, an 86Research analyst based in Shanghai, policymakers have been attempting to mitigate the impact of the new laws.

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