An article in Chinese state media criticizing the videogame industry’s “polluting” effect on China’s youth went viral Tuesday and caused the stock prices of leading game developers to plummet.
But within China, independent experts criticized the overreaction in the media and in markets, and most of the shares rebounded by Wednesday.
The worries stemmed from an opinion piece in an economics newspaper backed by the official Xinhua News Agency. The article—based on a relatively unnoticed government report last month on China’s gaming industry—used the phrase “spiritual opium” to refer to gaming’s effect on China’s youth. The article caught fire in Western media, resulting in a chatter about prospects for the sector and a 10% plunge for gaming leader
(700: Hong Kong).
Stocks for smaller gaming rivals
(BILI) fell by even more. NetEase’s American depositary receipts are up 2% in New York trading. Bilibili is up 2.4%. Tencent closed up 2.4% in Hong Kong.
While not mentioning the news article, Tencent posted a statement on its Weibo social media account, saying it would reduce playing time for minors for its wildly popular “Honor of Kings” game, and called for the entire industry to consider banning children under 12 from playing online games.
The original version of the article, in the Economic Information Daily, disappeared from China’s internet without explanation, with a toned-down version replacing it online. The revised article removed references to gaming as “spiritual opium” and “electronic drugs,” but still called the negative effects from the activity on the mental health of minors “shocking” and demanded industry “rectification.”
Several observers in China criticized the overreaction.
Chinese investment research platform Gelonghui on Tuesday wrote that after the article went viral, “friends were rushing to tell each other that the gaming industry is gone. But just as these friends seem dumbfounded, the article itself should have realized how overly-sensational it was.” A closer look at the original government announcement that prompted the inflammatory article revealed that this is a “false alarm,” Gelonghui said.
Perhaps most worrying for investors is the influence a single news article—based on a mildly worded government statement that didn’t threaten new or harsh measures—exerted on the stocks of some of China’s most valuable listed companies.
“This kind of thing is relatively common. In this case curbing game playing among Chinese youth is high on Beijing’s agenda, so many state media will feel free to write about it, though sometimes without realizing that what they write could upset financial markets,” Doug Young, editor at Shanghai-based Bamboo Works, a start-up writing about overseas-listed Chinese companies, told Barron’s.
Parents and the government have long fretted over young people’s obsession with gaming in China, which is the world’s largest market, pulling in more than $40 billion dollars in revenue last year, according to gaming analytics firm Newzoo.
“My son has been addicted to gaming for years,” Li Jun, an advertising salesperson in the city of Chengdu, told Barron’s. “He’s on his phone at least eight hours a day, and most of that is gaming, with breaks only to text his friends. We’ve tried and failed to stop him.”
With situations like Li’s common across China, authorities have regularly cracked down on the videogame sector.
The most seismic of these interventions came in 2018, when authorities refused to approve any new titles for nine months, citing concerns for its youth over game addiction, graphic content, the neglecting of studies, and worsening eyesight, the State Administration of Press and Publications said at the time.
In 2019, China began requiring real-name registration for online gaming, and limited the time minors could play a day. A law in June this year banned game-makers from providing content that “induces minors toward indulging and addictive consumption.”
While these concerns may be legit, sales growth of domestic games haven’t taken a hit. Sales increased 18% from 2017 to 2018, 15% from 2018 to 2019, and 27% from 2019 to 2020, according to data from Forward Intelligence’s “China Gaming Industry Report 2020.”
That may be because of the relative ineffectiveness of regulators’ efforts. “The gaming anti-addiction system is in vain,” wrote Xiong Bingqi, vice dean of China’s 21st Century Education Research Institute, an NGO.
Though he advocated stronger regulation, Xiong added that “underage students can easily get second-hand accounts to play games online, or use adult accounts to play games. Media investigations found that some students play games all day long, which fully shows that the anti-addiction system does not work at all.”