Children aren’t the only target of China’s tough gambling restrictions

Tech Sector Updates

Every day in China, nearly 10 percent of the population – 100 million people – enter the virtual world of Honor of kings, an online video game where heroes inspired by historical figures fight their enemies in the hunt for gold.

This fantasy role-playing game is, with over $ 7 billion in revenue, the highest-grossing game in the world – but you’d be forgiven for not hearing about it. While this is a craze that has engulfed its domestic market, the game has gained little in popularity elsewhere – over 95% of its users are in China.

Until now, the large number of new players signing up to the game have not been deterred by growing unease within the Chinese Communist Party over the social consequences of gambling.

The risk of addiction, overspending and abuse, especially among minors who may also be exposed to graphic content or violence, has led to games like Honor of kings being dubbed a “poison”, “drug” and “spiritual opium” by state-controlled newspapers. Headlines about people who died in internet cafes after a three-day gaming frenzy have been etched into the public consciousness.

But last month, those sentiments were turned into tough new policies as China imposed the world’s toughest limits on video games. New rules to “effectively protect the physical and mental health of minors” mean that under 18s can now only play online games three hours a week, between 8 p.m. and 9 p.m. on Fridays, Saturdays, Sundays and holidays .

The rules were no surprise. China has been proposing ways to counter what it sees as the negative consequences of gambling on society since 2000, when it effectively banned all video game consoles for 15 years.

In 2018 it introduced a new, stronger regulator to monitor the industry and a year later it established a curfew and other limits for children who had now migrated to games. But the severity of the new rules still shocked the industry and analysts, who described it as a relinquishment of Beijing’s recent fatherly control over the industry in a full-fledged attack.

The escalation is in line with a series of measures taken this year that reflect Beijing’s growing concerns about the size and reach of the country’s tech behemoths. He started a sweeping crackdown on the monopoly power of tech giants like Alibaba, Tencent and Didi that has already wiped out hundreds of billions of dollars of their value.

This political downturn follows decades of supercharged growth. In games, companies like Tencent, which owns Honor of kings, and NetEase, which operates Overwatch and Minecraft in China, are among the largest in the world.

Tencent’s market value is about a third of Amazon’s. Games have become a big new market, with brands like Burberry and Nike selling virtual costumes – “skins” – to gamers. Since Honor of kings released in 2015, gamers spent an average of nearly $ 3.7 million per day in the game, about $ 15 per user, according to the Sensor Tower analytics platform.

But now, Tencent and NetEase will struggle to attract and retain younger users, which could hurt their ability to train future players and hurt customer growth. There will also be greater pressure on companies to accelerate the development of facial recognition technology to prevent children from bending the rules by using the accounts of their parents or older siblings.

However, the reaction of the stock markets has so far been subdued. Tencent shares have rallied since the announcement, with investors believing the worst has happened. The company has already reduced its dependence on the income of under-18s, fearing that new regulations are likely to come.

Companies like Tencent pride themselves on anticipating larger trends. On his website, he boasts: “Understanding the unique characteristics of each new generation has always been a significant issue for the entire gaming industry.” Previously, he linked the craze to Honor of kings for the company to become “fairly introverted”, while claiming that gambling serves a “social function” by providing means to socialize online.

The Chinese state is fighting back. Fears about the risks of addiction have grown as the pandemic has resulted in greater social isolation. President Xi Jinping is campaigning to rebuild the world’s second-largest economy with an emphasis on “common prosperity.” These include instilling “correct values” in his younger generation and controlling the excesses of civil society. As this real battle escalates, it is the country’s tech moguls who are once again poised to take on the role of the bad guys.

Tabby Kinder is the FT Asia Financial Correspondent

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Johanna Gooding

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