China’s video game laws risk being a turn-off for the next generation

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Xie Xiaoming is a typical Tencent customer. The 31-year-old telecoms executive spends around eight hours a week playing two of the biggest video games backed by the company: League of Legends and PlayerUnknown’s Battlegrounds.

“It allows me to relax,” said Xie, from Anhui in southern China, adding that he started playing computer games when he was 16.

“Playing games is a way to socialise with old friends and it is very pleasant time for me to be alone when I do not feel like going out.” His partner does not approve, but Xie spends around Rmb200 ($31) a month on in-game purchases.

But under new rules that ban Chinese children playing games for more than three hours a week, he may never have become a Tencent customer in the first place.

The policy, which was released in late August, calls for gaming companies to limit under 18s to only play from 8pm-9pm on Friday, Saturday and Sunday or public holidays. Chinese state media said the move was designed to protect the mental and physical health of minors.

The announcement, the latest in a series of regulatory moves against the tech sector, wiped billions off the market value of Tencent and its rival NetEase. Online gaming makes up just under a third of Tencent’s revenues.

Both companies have insisted they will not be badly affected and welcomed the restrictions. “Over the past years, we have noticed there are certain games around the industry that has had a negative impact on children . . . so we think that the new requirements, the new regulations will keep teenagers away from away from games for as far as possible,” said William Ding, Netease’s founder, on an earnings call earlier this week.

They noted that only a tiny fraction of their gaming revenues come from minors, and their shares have bounced back in recent days. But analysts are fearful that the rules will squeeze the pipeline of future gamers, who often pick up the habit in childhood.

Mio Kato, an analyst at Lightstream Research who publishes on the SmartKarma platform, said that investors are “superficially looking at the low single-digit revenue contribution percentages of minors” but should be concerned about the “very significant downside risk to long-term earnings”.

“If you pick up a sport at 10 or 12 then you are more likely to keep playing it during your life,” Kato said. “If you are only allowed to play for three hours, many will choose not to play, so your lifetime value goes down significantly . . . that is the big risk, you don’t have a funnel of people playing these games.”

Cai Rongjun, a 31-year-old PhD student in Beijing, started playing video games when he was 13 and now plays Tencent’s Honor of Kings for about two hours each day and has spent RMB2,000 on the game. “I initially played in order to socialise with classmates and friends, then after you buy skins [costumes and accessories for players’ avatars bought inside the game] and tasks, you start to get addicted to it,” he said.

A 2013 US study of adult gamers video gaming histories found: “Video gaming appears to peak earlier in life . . . in late adolescence rather than emerging adulthood”.

But other analysts said that other regulations, both government restrictions as well as those self-imposed by the companies, have been in place for a long time on child gamers, so the new rules will not have a significant impact on revenues.

In 2019 China restricted children to 1.5 hours of gaming each day and three hours on holidays. Tencent then vowed to stop younger children spending money on games and to roll out facial recognition technology to stop minors evading controls.

Children might also increase the time they spend watching others play games online, using streaming services from Tencent and its rivals. “Minors who comply with the game time limits may fill their free time with streaming video, even more so than they do now,” Niko Partners, an Asian gaming market research firm, said in a note. “Streaming video time is restricted for minors already, yet not as much as the new rule on gaming.”

Both companies still have an enviable user base. While there are approximately 110m minors that play video games in China, the bulk of China’s 720m gamers are over 18. According to a March survey of 4,500 respondents by Newzoo, a gaming market data provider, 18 per cent of gamers in the country were under 18.

Some kids are also likely to break the rules, perhaps by using virtual private networks (VPNs) to access foreign gaming sites. “Youth gamers may bypass the new rule by logging into global servers via VPN [to] avoid the time limits,” Niko Partners said.

One 16-year-old gamer in central China’s Henan province who has already spent RMB1000 on Honor of Kings said he already uses his older brother’s account to play, so he’ll just spend more time playing his brother’s account when the new policy hits. “[The new regulation] is all because parents just hate games,” he said.

Additional reporting from Nian Liu in Beijing