© Reuters. File picture: The Tencent logo can be seen on the booth of the China International Trade in Services (CIFTIS) 2020 in Beijing, China on September 4, 2020. REUTERS/Tingshu Wang/File Photo
Authors Brenda Goh and Samuel Shen
Shanghai (Reuters)-China’s Tencent Holdings (OTC:) said on Tuesday that it would restrict minors from using its flagship video game after its share price was affected by an official media article describing online games as “mental opium” in the previous few hours. And suffered heavy losses.
The Economic Information Daily quoted Tencent’s “Glory of the King” in an article, saying that minors are addicted to online games and calling for more containment in the industry. The media is affiliated with Xinhua News Agency, China’s largest official news agency.
Shares of China’s largest social media and video game companies fell more than 10% in early trading, evaporating nearly $60 billion in market value. After the article disappeared from the store’s website and WeChat account, the stock is expected to record its biggest decline in a decade, and then regain lost ground.
A few days ago, securities regulators and official media tried to ease investors’ concerns about the pace and breadth of market reforms, which triggered a sell-off in technology and private education. The CSI 300 Index fell more than 5% last week, the largest monthly decline since October 2018.
The attack on the video game industry has renewed investor tension.
“The news has once again aroused market concerns about industry regulation,” said Kenny Ng, an analyst at Everbright Sun Hung Kai.
“Under this circumstance, it is expected that game stocks and even the overall technology stocks will still face continuous adjustment pressure,” he said, adding that the focus will shift to whether the company changes the access policy for minors.
In this article, the newspaper listed “Glory of the King” as the most popular online game among students, and it is said that these games are played for up to 8 hours a day.
The newspaper said: “No industry or any sport can develop in a way that destroys a generation,” and compares online video games to “electronic drugs.”
Tencent said in a statement that it will take measures to reduce the opportunities and time for minors to play games. It also called on the industry to ban children under 12 from playing games.
The company did not mention this article in the statement, nor did it respond to Reuters’ request for comment.
This article also hit the stock prices of competitors. NetEase (NASDAQ:) Inc’s stock price fell more than 15%, and then recovered the decline to about 8% in the afternoon trading. Game developer XD Inc fell 8.2%, and mobile game company GMGE Technology Group Ltd fell 15.6%.
In addition to the game, the State Administration for Market Regulation (SAMR) also caught investors off guard on Tuesday, saying that it would investigate auto chip dealers and punish any hoarding, collusion and price-raising behavior. The semiconductor stock index subsequently fell by more than 6%.
The government vowed to strengthen regulations on online gaming and education to protect the well-being of children. Last month, it banned for-profit tutoring in core school subjects and attacked China’s $120 billion private tutoring industry.
This adds to other regulatory actions in the technology industry, including prohibiting Tencent from signing exclusive music copyright agreements and imposing fines for unfair market behavior.
On Tuesday, Tencent was replaced by chip manufacturer TSMC as the most valuable company in Asia.
“This shows how neurotic investors are today. They don’t believe that anything is unrestricted. They will react to anything in the official media that fits the narrative of the technology crackdown, sometimes overreacting,” the partner in Beijing Ether Yin said. Consulting company Trivium.
“The government will not and cannot get rid of the gaming industry… Restrictions will continue to exist, but there is not much room for tightening,” he said.