Tencent Leads $60 Billion Loss as Game Crackdown Expands

(Bloomberg) — Tencent Holdings Ltd. and Netease Inc. shed more than $60 billion of value as investor fears grow that Chinese regulators are preparing to tighten their grip dramatically on the world’s largest gaming industry.

Chinese regulators summoned industry executives to a Wednesday meeting to instruct them to break their “solitary focus” on profit and prevent minors from becoming addicted to games, according to the official Xinhua News Agency. Regulators also said China will slow down approvals for all new online games, the South China Morning Post reported Thursday.

The newspaper corrected an earlier report that said China had put a freeze on game approvals. Tencent’s ADRs then recovered some of their losses, closing 2.8% down after falling as much as 5.2%. Netease’s ADRs finished 2% lower after sliding as much as 6.9%.

Investors are already on edge because of a months-long government campaign to rein in industries from e-commerce and ride-hailing to social media. Xinhua made no mention of the approval suspension.

Xi Jinping’s administration is waging a concurrent campaign to curb addiction among minors, reduce growing spending on virtual items and prod youths toward more productive pastimes. The government just last week released new regulations for the industry, including limiting the amount of time children can play video games to three hours a week.

A moratorium on new titles would mark an escalation in the gaming crackdown, hitting developers’ wallets directly. It recalls a 10-month freeze on game monetization licenses in 2018, then intended to combat addiction and myopia among children. That spurred Tencent’s first profit drop in at least a decade and helped wipe about $200 billion off its market value at one point.

On Thursday, Tencent extended losses in late afternoon trading in Hong Kong to finish 8.5% lower, its steepest fall since July. Netease plummeted 11%. Representatives for the companies didn’t immediately respond to requests for comment. Prosus NV, Tencent’s biggest shareholder, fell 5.2% in Amsterdam while parent Naspers Ltd. dropped 7.8% in Johannesburg.

Meanwhile, Tencent’s hotly awaited League of Legends Mobile title won’t launch on Sept. 15 as initially anticipated because “it needed to improve the gaming experience,” according to a notice posted on the game’s official Weibo page. Testing will run till after the National Day holiday in October, the notice said without elaborating.

Officials from the Communist Party’s publicity department and the industry regulator disclosed their decision to Tencent and Netease executives at Wednesday’s meeting, the South China Morning Post reported, citing a person briefed on the matter.

A previous version of SCMP’s report said that gaming approvals have been put on hold while the government figures out how to whittle down the number of titles in the market, particularly after the frenetic pace of the first half.

Investors have grown increasingly nervous about the gaming sector since August, when Chinese state media decried the “spiritual opium” of games, prompting Tencent to broach a ban for kids. While various newspapers have since walked back that comment, saying it was an overstatement, the lingering concern is that Beijing will next train its attention on an arena that’s pivotal to the bottom line of media giants from Tencent to Apple Inc. and Activision Blizzard Inc.

More broadly, Beijing’s campaign to rein in its giant internet industry is approaching its 11th month, a roller-coaster ordeal that began when regulators torpedoed the record IPO of Jack Ma’s Ant Group Co., before launching investigations into Alibaba Group Holding Ltd., Tencent-backed food delivery giant Meituan and Didi Global Inc.

(Updates with shares from third paragraph. An earlier version of this story was corrected to show the South China Morning Post had walked back its story.)

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