The gestation period for Chinese gaming licence approvals has at least one similarity with childbirth: Beijing just started granting new ones again after a nine-month freeze. This marks the second time in four years that it has held out for exactly three full trimesters.
But on April 11, the State Press and Publication Administration (SPPA) approved its first batch of online games since July 2021. A total of 45 games – of which 39 were in mobile format, five in PC and one for consoles – were approved.
The developers encompassed 18 listed companies including Bytedance and Baidu but not market leaders Tencent or NetEase. Still, the news prompted a sigh of relief from the financial markets, even though the 45 licences were lower than the monthly average of 80 approvals in the first quarter of 2021.
Bilibili, a video platform that has expanded into online gaming, closed up 12.2% in Hong Kong the following trading day. NetEase rose a lesser 4.2% but has continued inching up since then, while Tencent was up 3.6% on the same session.
The SPPA’s move was interpreted as a softening after regulators’ two-year long crackdown on the internet sector. Financial analysts are now expecting an acceleration of approvals in the coming quarters.
CMB International Securities described it as a “big catalyst” and expects the “next batch – with different games genres – to come soon”. Analyst Eason Xu values the sector at an average of 12 times forward earnings, favouring Tencent and NetEase, which are respectively trading at 22 and 20 times forward earnings.
However, what the government gives with one hand it can take with the other: in a simultaneous move it clamped down on Chinese gamers’ ability to access online games hosted on foreign servers.
In the past, companies like Tencent offered gamers network acceleration tools to improve internet speeds so that they could access them.
However, Reuters reported that Tencent has announced that it will only support games officially operating in China when it next updates one of its app at the end of May.
Last year, Beijing released a stream of anti-addiction guidelines, permitting children to only play games on public holidays, plus Fridays, Saturdays and Sundays between 8pm and 9pm. To play they are also now required to use their government issued ID cards and real names.
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