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  • Tencent, NetEase shares rebound after China regulator's assurance on new rules

    Tencent, NetEase shares rebound after China regulator's assurance on new rules

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    A mobile phone is displaying the screen of Tencent Games company’s stock plunge in Suqian, Jiangsu Province, China, on December 22, 2023.

    Costfoto | Nurphoto | Getty Images

    Chinese online gaming stocks rose Wednesday, recovering some losses from the previous session after the country’s top gaming regulator said it will “carefully study” the concerns of all stakeholders on draft rules aimed at curbing excessive online gaming and spending.

    The draft guidelines from China’s National Press and Publication Administration last Friday sank the Hong Kong-listed shares of Tencent, NetEase and Bilibili — among the largest players in the world’s biggest online gaming market. The proposed rules are aimed at prohibiting incentivizing daily sign-ins for games, among other revenue-generating practices.

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    NetEase shares rebound

    On Wednesday, NetEase shares surged as much as 14% in early trading as Hong Kong markets returned from the Christmas holidays. The stock had plunged about 25% on Friday. Rival Tencent climbed almost 4.5% in early trading after shedding more than $43 billion in market value in Friday’s rout.

    Bilibili, a social media site that derived 17.1% of its total third-quarter net revenue from Chinese domestic gaming, climbed 2%. Its shares had tumbled about 10% on Friday.

    On Saturday, China’s top gaming regulator pledged to “carefully study” the concerns of stakeholders on the draft rules, particularly surrounding Articles 17 and 18, according to a WeChat statement.

    Overhang remains

    These two articles would ban online games from forcing players into duels with other players, while also requiring owners of online games to abstain from providing or condoning high-value or expensive transactions in virtual entities whether by auction or speculative activity, among other things.

    Daily login rewards would also be banned, while recharging limits must be imposed with pop-up warnings issued to users who display “irrational consumption behavior,” the National Press and Publication Administration said in the draft rules.

    These latest draft rules come as the broader China technology industry was just emerging from a broader crackdown that started in late 2020.

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    Tencent shares rebound

    The National Press and Publication Administration, which controls the publication of new games, also said Monday that it approved more than 100 new domestic games, after saying Friday that it approved 40 imported games.

    “We believe these fire-quenching measures may help to slightly ease market concerns, but they are not enough to remove the overhang caused by the draft regulation,” Nomura analysts said in a Tuesday note.

    — CNBC’s Evelyn Cheng contributed to this story.

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  • China's potential new gaming rules will hit smaller developers more, analyst says

    China's potential new gaming rules will hit smaller developers more, analyst says

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    Mobile games in China range from League of Legends-like Honor of Kings to

    Source: Apple Inc.

    BEIJING — China’s proposed gaming rules would hit smaller developers more than large ones, while also reducing overall online advertising revenue, according to UBS.

    Tencent, NetEase and Bilibili shares plunged to their lowest in more than a year Friday after China’s National Press and Publication Administration published draft rules that would prohibit incentivizing daily sign-ins for games, among other revenue-generating practices.

    The comment period is open until Jan. 24. Hong Kong markets are closed Monday and Tuesday for Christmas.

    “Big game developers or big DAU [daily active user] social games should fare better: This is because they have other means to boost gamers engagement, reach out to users and have stronger R&D capabilities to attract and retain gamers,” Kenneth Fong, head of China internet research, UBS, said in a note.

    “With a lower revenue for online games, the ad industry would be impacted too,” he said. UBS estimates online games account for about 20% of the online ad industry’s revenue.

    Gaming accounts for the majority of NetEase’s revenue, and about one-fifth or less at Tencent and Bilibili, third-quarter releases show.

    Many other companies develop and publish games in China, although Beijing has in recent years made clear it would like to restrict game play, especially among minors.

    It’s “very common” for online games to encourage daily sign-in and offer rewards for the initial in-app purchase, UBS’s Fong said. He pointed out that incentivizing users to sign in every day boosts engagement and allows for collection of user statistics, which can help developers adjust games in real time.

    However, Fong said it is hard to quantify the financial impact of the proposed regulation since it’s unclear whether it would apply only to new games or also existing ones.

    The National Press and Publication Administration, which controls the publication of new games, said Monday that it approved more than 100 new domestic games, after saying Friday that it approved 40 imported games.

    Generally, Fong expects new games to be affected more than old ones. “As the online game is a very creative industry,” he said, “we believe the game developers would likely design other means to attract and retain users.”

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  • Tencent loses over $43 billion in market value after China proposes new online gaming rules

    Tencent loses over $43 billion in market value after China proposes new online gaming rules

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    Tencent lost about $43.5 billion in market value on Friday after China surprised financial markets with a fresh set of rules aimed at curbing excessive gaming and spending.

    The draft guidelines from China’s National Press and Publication Administration sank the Hong Kong-listed shares of Tencent, NetEase and Bilibili — among the largest online gaming-related counters in the world’s biggest online gaming market.

    “The most recent regulatory move on the online gaming industry is the last thing the market was hoping to hear out of Beijing,” Brian Tycangco, an analyst at Stansberry Research told CNBC.  

    “While well intended, the move casts doubt on the viability of existing business models that mostly are built around incentive or rewards to attract users and boost loyalty,” he added.

    Shenzhen-based Tencent, which owns WeChat and generated over a fifth of its third-quarter revenue from domestic online gaming, saw its shares tumble about 12.4% to close at HK$274, its lowest closing level since end-November 2022.

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    Tencent Holdings

    NetEase, 80% of whose third-quarter revenue came from domestic online gaming, plunged 24.6% to close at HK$122. Friday’s losses wiped out about 115.1 billion Hong Kong dollars ($14.7 billion) off NetEase’s market capitalization.

    Bilibili, a social media site that derived 17.1% of its total third-quarter net revenue from Chinese domestic gaming, saw its shares slide 9.7% to close at HK$80.30, its lowest since November 2022 — shaving about 2.4 billion Hong Kong dollars ($307 million) off its market capitalization.

    The Hang Seng Index closed down 1.7% on Friday ahead of a four-day holiday weekend, while the China Enterprises Index of the largest offshore mainland blue-chip names listed in Hong Kong ended down 2.3%.

    “I’m confident we’ll get more clarity on these new rules in the coming days and weeks. But investors don’t want to wait around for the dust to settle. Better coordination between industry and regulators will benefit everyone in the future,” Tycangco said.

    New guidelines, fresh setback

    New draft guidelines released by China’s top gaming regulator require owners of online games to abstain from providing or condoning high-value or expensive transactions in virtual entities whether by auction or speculative activity, among other things.

    Daily login rewards will also be banned, while recharging limits must be imposed with pop-up warnings issued to users who display “irrational consumption behavior,” the National Press and Publication Administration said.

    “These new measures do not fundamentally alter the online gaming business model and operations,” Vigo Zhang, vice-president of Tencent Games, told CNBC. “They clarify the authorities’ support for the online gaming industry, providing instructive guidance encouraging the innovation of high quality games.”

    Read more about China from CNBC Pro

    These latest draft rules come at a time, given the broader China technology industry was just emerging from a broader crackdown that started in late 2020.

    Just over a year ago, Tencent secured rights to five of the 45 foreign game licenses approved by the National Press and Publication Administration in the first batch of approvals since Beijing’s crackdown on the video-games sector that started in August 2021.

    At the country’s annual legislative meetings in 2021, China President Xi Jinping blamed addiction to online gaming for rising myopia and the adverse psychological well-being of the country’s young.

    China's evolving new tech guard shifts from Alibaba to ByteDance

    Later that year, the National Press and Publication Administration proposed that children under 18 be should not allowed to play online games for more than three hours a week, limiting them to legal game time only between 8 p.m. and 9 p.m. on Fridays, weekends and public holidays starting in early September.

    In August, the Cyberspace Administration of China proposed rules to limit the smartphone screen time of people under the age of 18 to a maximum of two hours per day.

    — CNBC’s Lim Hui Jie and Arjun Kharpal contributed to this story.

    Correction: An earlier version of this story misstated the milestone after the slide in Tencent’s share price.

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  • Goldman Sachs says A.I. will ‘super-charge’ music creation and names 5 stocks to buy

    Goldman Sachs says A.I. will ‘super-charge’ music creation and names 5 stocks to buy

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    The music industry is set for a radical shift due in part to generative AI, according to Goldman Sachs, which described the new technology as providing “significant opportunities” for the sector.

    It named five buy-rated stocks to play the trend: Live Nation, Warner Music Group, French digital music company Believe, China’s NetEase, and Universal Music Group. All of the stocks are on its conviction list of top stocks.

    “Generative AI will super-charge music creation capabilities and improve productivity,” according to Goldman’s analysts in a June 28 note. And investors’ concerns over AI-generated music, such as a track reportedly created using the technology and featuring a “fake Drake” in April, are “overstated,” they suggested.

    Companies such as Deezer and Believe are using AI to detect when a music track has been created by AI, the analysts noted, while publishers are working with streaming sites like Spotify to take artificially generated tracks down.

    The music industry is well set up to protect its intellectual property given that it is dominated by three large companies that own the majority of artists’ catalogs, according to Goldman.

    “We believe the music industry is on the cusp of another major structural change given the persistent under-monetisation of music content, outdated streaming royalty payout structures and the deployment of Generative AI,” the analysts added.

    Streaming means it’s easier than ever for people to access music, but revenue has not matched consumption, the analysts noted. “For example, we estimate that the revenue per audio stream has fallen 20% in the past 5 years and that the revenue per hour streamed of music for Spotify is 4x lower than for Netflix,” the bank stated.

    Goldman likes events promoter Live Nation as it expects artists to tour more frequently due to what it calls the globalization of music. It added that younger generations becoming more aware of performers via social media will also boost the industry.

    On Believe, the bank said: “We expect the company to continue gaining market share with its digital-first approach, particularly in the fast-growing emerging markets across Asia.”

    WMG, meanwhile, is “one of the highest quality long-term growth compounders in our coverage group,” according to the analysts, while its competitor, UMG is on its conviction list for Europe, which comprises.

    “We believe UMG possesses several competitive advantages, including its scale, clear and consistent track record in breaking artists, the depth and breadth of its catalogue, and its ability to spot new trends early, under the stewardship of an experienced management team,” the analysts stated.

    Goldman chose Chinese internet company NetEase, which has a music streaming platform, for its use of AI in its music composition tools.

    — CNBC’s Michael Bloom contributed to this report.

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  • A video game developer with nearly 40% upside because of A.I. opportunity, according to Bernstein

    A video game developer with nearly 40% upside because of A.I. opportunity, according to Bernstein

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  • Hong Kong stocks enter bear market territory as China reopening optimism continues to fade

    Hong Kong stocks enter bear market territory as China reopening optimism continues to fade

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    People wearing face masks crossing a street at Hong Kong’s Wan Chai district on Feb. 16, 2021.

    Zhang Wei | China News Service | Getty Images

    Hong Kong’s benchmark index entered bear market territory Wednesday on an intraday basis, erasing the rebound gains from China’s reopening.

    The Hang Seng index hit a session low of 18,105.78. That’s 20.2% below its 52-week closing high of 22,688.9 reached on Jan. 27. A technical bear market is defined as when prices fall 20% below recent highs.

    Hong Kong technology stocks were among the leading decliners for the overall index, including internet company NetEase and e-commerce platforms Meituan and JD.com. Alibaba shed nearly 3%, Baidu fell more than 4%, and Bilibili plunged by 6%.

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    The Hang Seng Tech index has already fallen by more than 25% from its January peak. That’s a stark contrast to the reopening optimism that had once driven Asia-Pacific’s benchmark MSCI Asia Pacific index to a bull market.

    The Hang Seng China Enterprises index, which measures the performance of the 50 largest and most liquid mainland Chinese companies listed in Hong Kong, has also retreated by more than 21% from its January peak.

    Analysts had initially expected China’s economy to recover faster and earlier than expected, but that view quickly faded after the country continued to deliver disappointing economic data.

    The latest factory activity reading for China came in at 48.8, below the 50-mark that separates growth from contraction — and missing the 49.4 estimate from a Reuters poll.

    We expect a 'modest' appreciation of the Chinese yuan after 3 months, Goldman Sachs says

    Morgan Stanley analysts said in a May 17 report that a weak reading in that manufacturing measure “has been a solid precursor to policy easing.” Economists told CNBC that a disappointing rebound could lead to more government stimulus ahead.

    “If growth does not accelerate sufficiently to narrow the output gap, social stability risk may rise and eventually trigger more meaningful stimulus,” Morgan Stanley analysts wrote in the note.

    The National Bureau of Statistics noted the purchasing managers’ index for large manufacturers came in at 50, while that of smaller manufacturers was lower. The index for services activity remained in expansionary territory at 54.5, but marked a second-straight month of decline.

    Demand a major concern

    Citi economists wrote in a Wednesday note that the latest economic data missing expectations by a large margin is seen as “signs of fatigue with the initial reopening impulse peaking.”

    “Insufficient demand could be the major concern now, and there are both cyclical and structural causes for it,” they wrote, adding the “initial boost to the services sector from reopening could be fading.”

    Citi economists also expect the People’s Bank of China to cut its medium-term lending facility rates by 20 basis points and its reserve requirement ratio by 50 basis points by the end of the year.

    “We reckon that the Chinese economy could be on the verge of a self-fulfilling confidence trap and believe decisive policy actions are needed,” they wrote.

    “There could be limited room for fiscal easing from the budget and we expect structural easing efforts with more efforts from the central government and quasi-fiscal tools via policy banks,” they wrote.

    – CNBC’s Evelyn Cheng contributed to this report

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  • Microsoft’s $69 billion Activision takeover in doubt as UK regulator raises competition concerns

    Microsoft’s $69 billion Activision takeover in doubt as UK regulator raises competition concerns

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    An Activision Blizzard’s Call of Duty: Modern Warfare video game is inserted into the Microsoft’s Xbox One video game console arranged in Denver, Colorado, on Wednesday, Jan. 19, 2022.

    Michael Ciaglo | Bloomberg | Getty Images

    The British competition regulator says that Microsoft’s $69 billion acquisition of gaming giant Activision Blizzard could harm competition in the U.K. gaming market, and that it could move to block the deal.

    The Competition and Markets Authority published a provisional decision on the deal on Wednesday, stating that the takeover raises competition concerns and may result in higher prices, fewer choices and less innovation.

    In a notice of possible remedies sent to both parties, the CMA said it may require Microsoft to:

    • sell the business associated with its popular Call of Duty franchise
    • divest the Activision segment of Activision Blizzard
    • divest both Activision and Blizzard
    • terminate the deal

    Microsoft and Activision Blizzard have until Feb. 22 to respond. The CMA is set to issue a final decision on April 26. The regulator opened an in-depth probe into the deal on Sept. 1.

    The CMA is concerned that the Activision deal could strengthen Microsoft’s position in the cloud gaming market, adding Call of Duty and other lucrative titles to its cloud-based Xbox Game Pass platform.

    Cloud gaming, which allows gamers to play games over the internet on devices other than a console, is still in its infancy and not yet a mass-market technology.

    The deal would also boost Microsoft’s console business, the CMA said, adding that Microsoft would find it “commercially beneficial” to make Activision games exclusive to its Xbox hardware or available on PlayStation “under materially worse conditions.”

    This “could substantially reduce the competition between Xbox and PlayStation in the UK, in turn harming UK gamers,” the watchdog noted.

    Activision Blizzard shares were down 2% on Wednesday following the CMA announcement. Microsoft shares, meanwhile, were trading 2% higher on the back of an announcement about the tech giant’s artificial intelligence advancements.

    “We are committed to offering effective and easily enforceable solutions that address the CMA’s concerns,” said Rima Alaily, Microsoft corporate vice president and deputy general counsel, in an emailed statement to CNBC.

    Microsoft has made commitments to Sony and Nintendo to continue releasing its new Call of Duty games on their respective PlayStation and Switch gaming platforms for 10 years.

    An Activision Blizzard spokesperson said the company hopes to “help the CMA better understand our industry to ensure they can achieve their stated mandate to promote an environment where people can be confident they are getting great choices and fair deals.”

    Activision Blizzard CEO Bobby Kotick also sent an internal memo to employees Wednesday, saying that the company was “confident that the law – and the facts – are on our side.”

    “In this case, our combined companies will bring more competition to an already crowded field of world-class gaming competitors, including Sony, Tencent, NetEase, Apple, Amazon, and Facebook,” Kotick added. “We believe this merger gives us additional resources to compete with such giants.”

    The Microsoft-Activision deal also faces scrutiny in the U.S. and European Union.

    Stateside, the Federal Trade Commission is seeking to block the purchase on competition grounds, while the European Commission also has a competition investigation into the transaction. The commission, which is the executive arm of the EU, recently filed a charge sheet known as a statement of objections setting forth its concerns about the deal, according to Reuters.

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  • China’s NetEase criticizes Blizzard offer as unequal, unfair

    China’s NetEase criticizes Blizzard offer as unequal, unfair

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    HONG KONG (AP) — China games company NetEase Inc. has rejected a proposal from World of Warcraft creator Activision Blizzard to temporarily extend its partnership while the U.S. company seeks a new partner, calling the proposed terms “unequal and unfair” in an escalating public spat.

    Blizzard said in November that its 14-year partnership with NetEase was set to end, spelling the imminent withdrawal of games such as World of Warcraft, the Starcraft series, and Overwatch from the world’s biggest games market as of Jan. 23.

    In a statement, NetEase said Wednesday that Blizzard proposed to extend the partnership for six months under existing terms while it continued seeking for a new partner in China.

    “We believe that Blizzard’s proposal … is rude, inappropriate, and not in line with business logic,” NetEase said.

    The Chinese company criticized Blizzard for its “excessive confidence” in making requests that it said demonstrated a lack of consideration for NetEase and gamers.

    NetEase’s statement came a day after Blizzard said the Chinese firm had declined to take up an extension offer that would have prevented a disruption of services in the Chinese market while the U.S. firm continued to negotiate with potential partners.

    Blizzard has yet to find a new Chinese publisher for its games as required for releasing its titles in China. It said that it would push out a service that would let users save and download their World of Warcraft progress so that they can pick up where they left off when the game comes back online.

    In part due to NetEase’s longstanding partnership with Blizzard, the Chinese company has grown to become China’s second-largest games distributor after local rival Tencent.

    NetEase’s shares plunged following the November announcement the partnership was ending. They recovered after the company said Blizzard’s games contributed only a low single-digit percentage of its total revenue and income.

    NetEase CEO William Ding said at the time that there were “material differences on key terms” that the two companies could not agree on.

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  • Hong Kong stocks off to best start since 2018 on China recovery hopes

    Hong Kong stocks off to best start since 2018 on China recovery hopes

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    Shoppers walk through a street market in Hong Kong, China, on Sunday, Jan. 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images

    Bloomberg | Bloomberg | Getty Images

    Hong Kong stocks kicked off 2023 with the most gains they’ve seen in the first trading session of a year since 2018.

    The Hang Seng index on Tuesday gained 1.84%, or 363.88 points — its biggest first-day gain since January 2018, when the index rose nearly 2%.

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    That signaled an improved outlook as China continues to reopen despite a nationwide surge in Covid infections.

    “While it is inevitable to see further surges and more widespread in inflection at the initial stage of opening, the outlook for the Chinese economy has brightened for 2023,” Redmond Wong, Saxo Capital Markets greater China market strategist, said in a note.

    “In addition to the reopening, China has intensified its effort to support the distressed property sector and given property developers access to credits and equity financing which had been denied to them for the most part of 2022,” Wong wrote.

    Property and technology stocks continued to lift the Hang Seng index, which rose more than 3% in Wednesday’s session. The index exceeded 20,600, the highest level it’s seen since July 29, according to Refinitiv data.

    Chinese property developer stocks listed in the city rose: Country Garden jumped more than 7%, Longfor Group gained nearly 12% and Cifi Holdings Group jumped 13% on Wednesday.

    The moves followed reports of Chinese officials planning to provide further policy support for ailing real estate developers.

    Chinese tech giant Alibaba is one of our top picks this year, says asset management firm

    Technology stocks also rallied, with shares of Alibaba rising 8% after Chinese regulators approved Ant Group‘s plan to more than double its registered capital, a sign of progress in resolving regulators’ concerns.

    Electric vehicle maker Baidu rose more than 8%; Chinese video and gaming app Bilibili gained nearly 9%; Netease rose more than 5%; JD.com climbed 7%; and Tencent also rose around 4%.

    The Hang Seng rally came after Chinese Finance Minister Liu Kun told Xinhua in an interview that there will be more fiscal policy support.

    Shoppers purchase festive sweets ahead of Lunar New Year at a street stall in Hong Kong, China, on Sunday, Jan. 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images

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    The government will work on expanding and improving the “effectiveness of the proactive fiscal policy to cope with multiple challenges ahead,” the minister was quoted as saying.

    Chinese investment bank Guotai Junan Securities said the performance of Hong Kong stocks will affect the wider global market.

    “The Hang Seng Index may lead other major global stock indices in 2023, with around 30% expected return,” analysts at the firm said in a Wednesday note.

    “The index valuation may see further rerates, and we expect the HSI to recover to its previous level before Jun. 2022,” they said in the note.

    Read more about China from CNBC Pro

    Implications for U.S. Fed

    China’s reopening is a positive sign for Asian stocks and global economic growth in 2023, but it carries also inflationary risks, thanks to China’s role in driving demand for the global commodities market, analysts at Raymond James said in a note.

    Weaker growth in the Chinese economy will likely increase the chances of a more dovish Federal Reserve, while stronger growth will raise the possibility of a “stubbornly hawkish Fed,” equity strategist Tavis McCourt wrote.

    “Volatility seems certain with equities finishing either modestly higher or modestly lower depending on the rate path,” McCourt said in the note.

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  • Investments are set to flow back into China as tech giants avoid U.S. delisting, government pledges policy support, says investment manager

    Investments are set to flow back into China as tech giants avoid U.S. delisting, government pledges policy support, says investment manager

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    Chinese e-commerce giant Alibaba was one of the 100 over companies that had faced the risk of delisting in the U.S. in 2024 if it did not hand over the audits of their financial statements.

    Budrul Chukrut | Sopa Images | Lightrocket | Getty Images

    Investors could regain the confidence to put their money in Chinese tech stocks as these companies avoid delisting from U.S. stock exchanges and the Chinese government pledges policy support, according to one investment manager.

    Last week, U.S. accounting watchdog the Public Company Accounting Oversight Board said it gained full access to inspect and investigate Chinese companies for the first time, after China finally granted the U.S. access in August.

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    More than 100 Chinese tech companies such as Alibaba, Baidu and JD.com had faced the risk of delisting in the U.S. in 2024 if their audit information was not made available to PCAOB inspectors.

    Investors often grapple with a lack of transparency into Chinese stocks.

    “It will allow institutional investors to come back. Professional investors were very scared about this delisting risk which was why they have stayed on the sidelines,” Brendan Ahern, chief investment officer at U.S.-based investment manager KraneShares, told CNBC’s “Squawk Box Asia” on Wednesday.

    China tech: Expect to see more policies geared toward raising domestic consumption, KraneShares says

    As of Sept. 30, there were 262 Chinese companies listed on U.S. exchanges with a total market capitalization of $775 billion, according to the United States-China Economic and Security Review Commission.

    “With that risk going away based on the PCAOB announcement, you are going to see investment dollars flow back into these names,” said Ahern.

    “These internet giants are really where investors want to invest when it comes to China,” said Ahern.

    But he also caveated that it is still “early days, weeks, months to see that capital return back into the space.”

    Read more about tech and crypto from CNBC Pro

    But he also noted policy support will help to boost growth for these companies. Last week, China pledged to raise domestic consumption next year, as the country moves toward boosting growth after exiting its zero-Covid policy.

    “2023 is a year where we are going to have a lot of government policy support such as raising domestic consumption,” said Ahern. “About 25% of all retail sales goes through the companies.”

    “The Chinese government actually needs these internet companies, which explains why we have seen a backing off on some of the regulatory scrutiny we experienced in 2021,” said Ahern.

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  • China is showing signs its intense crackdown on the video game sector is easing

    China is showing signs its intense crackdown on the video game sector is easing

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    Chinese regulators have increased scrutiny on the domestic game sector over the past year and a half. But new batches of game approvals and positive steps on improving gaming addiction among kids under 18 years old, could be positive signs that the crackdown is easing.

    Xing Yun | Costfoto | Barcroft Media | Getty Images

    Beijing is showing signs that its intense crackdown on the domestic video games sector could be easing which may be bullish for Chinese tech giants including Tencent and NetEase.

    On Tuesday, research firm CNG alongside the China Game Industry Group Committee, which is affiliated with the gaming publishing regulator, published a report in which they praised the progress on reducing gaming addiction among people under the age of 18.

    Regulators have been concerned for some time about gaming addiction among minors. Last year, China’s National Press and Publication Administration brought in rules that restricted kids under 18 years old from playing online games for more than 3 hours per week.

    The CNG report holds weight because it has been published in conjunction with a key gaming industry body with links to the regulator. The report said more than 70% of minors play games for less than 3 hours a week, and the problem of minors’ game addiction has “achieved a step toward resolution,” according to a CNBC translation.

    The positive report could signal a more bullish outlook toward the Chinese gaming sector.

    “China’s strict regulatory approach over the past year has been a result of a lack of enforcement and compliance across key areas,” Daniel Ahmad, senior analyst at Niko Partners, told CNBC. “With game companies now fully compliant, we are seeing a more positive outlook start to develop.”

    The CNG report also singles out major Chinese gaming companies including Tencent and NetEase for their positive moves enforcing the protection of minors.

    For example, both Tencent and NetEase use facial recognition to see whether the person playing the game is an adult.

    Another positive sign came last week when the regulators approved a batch of 70 new games for release. In China, video games need approval to be published and monetized. Among the approvals was a game titled Metal Slug: Awakening from Tencent, marking the company’s first commercial game license in a year and a half, according to Reuters.

    Last year, China froze game approvals in the summer and only began green lighting games in April this year. But titles from Tencent, China’s largest gaming firm, have been absent from the lists until now.

    Tencent management last week told analysts on its third-quarter earnings call that the company expects game licenses to be approved relatively quickly in the future, adding to further signs of regulatory scrutiny on the sector easing.

    Martin Lau, president of Tencent, said the company is seeing “positive signals across the path of macro and regulatory normalization.”

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