I’ve spoken to various first and secondhand sources in the gaming sector and sat in on Pei Pei’s livestream today (ex-SinoLink analyst who focuses on gaming quite a bit, ie this post was translating his ideas) and I think that everyone is confused about whether or not more gaming restrictions are coming down the pipeline. There are very few confident voices. So if you are feeling similarly dejected trying to untangle exactly why there was that article slamming video games as digital opium and then a subsequent retraction … don’t worry, you aren’t the only one. However, just because everyone is flustered doesn’t mean that you should despair gaming will be regulated like after school tutoring. No indeed! There is no evidence of that at all. First, here’s what happened:
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8/2 The Economic Information Daily, a state-owned paper, publishes this oped about video games being spiritual opium
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The same day it is rendered inaccessible, then is reposted with the opium portion taken out
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Tencent, Netease etc. drop 5%+ on the news, but recover a bit after the opium bit is taken out. Nonetheless, some folks are worried that gaming will become the new AST and be forced to become nonprofits.
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8/3 Tencent proactively introduces new restrictions for minors playing their games. “Tencent said in a statement it will limit gaming time for minors to one hour a day, and two hours a day during holidays. Children under age 12 will also be prohibited from making purchases within the game.” The company even suggests that tighter rules be implemented in the future to under-12 year olds.
Like many others, such as billionaire investor Duan Yongping of BKK fame (Oppo, Vivo parent company), mentor to Colin Huang and angel investor in Pinduoduo, and notable value investor / Buffett groupie, I thought the fear that gaming would become a “nonprofit” like AST was way unjustified. (Duan wrote on 8/4 that he added to his Tencent holdings, which he picked up first in 2018 post gaming regulations.) I’m very cautious when it comes to gaming, and I think it will always be “tightly regulated,” as the wording goes, but fearing that it will go the way of AST is unwarranted, IMO. Can it be slowed down by the government, as back in 2018? Might there be more restrictions coming down the road? Maybe? (There is already noise that the toughest restrictions should be up to age 18, not 12 as currently implemented.) Yes. Will it get nuked? I really don’t think so.
As this FT Chinese oped states, it’s hardly the first time that gaming has been likened to drugs by state-owned media.
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2/17/94 People’s Daily called video games “digital cocaine“
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5/9/00 Guangming Daily called it “digital heroin” (for those who’ve studied addiction like I have, the joke I like to make is that heroin is 2-3x stronger than opium so clearly we are talking about a softened stance!)
But also, as this professor notes, analyzing some 1700 articles over 40 years of People’s Daily articles on video gaming shows that the last 5 years only has about 13% negative coverage of the space, compared to the first 7 years where it had been 100% negative. Since 2012, the framing has changed noticeably from “harming our youth” to one emphasizing “new culture and entertainment.” Very positive, honestly speaking.
That being said, the nature of Chinese society is such that everyone overwhelmingly believes (even though it is less and less true!) that trading one’s childhood for an excellent gaokao (college admissions test) score is the only way to live. And even if that’s not what you’re shooting for (60% of kids go to high school, meaning 40% end up at vocational high school, out of the overall 90% that go to any kind of high school at all after middle school graduation) it’s still unacceptable to waste your childhood years doing anything other than studying. That’s the Chinese mentality — do the thing that is appropriate for your age, and as a minor, it is all about going to school.
After you are in the workforce? Play all you want! Is it likely to lead to marital strife? Yes, I’ve mentioned that before. But it’s a very small fraction of divorces (the top reason being infidelity or irreconcilable differences, depending on who you read), so I wouldn’t worry about the government cracking down on this as a way to alleviate the demographic crisis. And as others have noted, it’s actually one of the ways Gen Z in particular are meeting each other and pairing up these days. So you could cheekily argue that gaming in fact is a positive contribution to the birth rate. This is all just really making fun, of course, because at the end of the day, it is the cost of education (and real estate) that prevents folks from having children, not game playing or even addiction. So, if you believe that the Chinese government isn’t just on some random rampage but actually interested in solving the demographic crisis, then gaming is pretty far away from the sectors that would actually move the needle.
That doesn’t mean it won’t constantly be in the news by angry parents (and some spouses) until the video game makers can truly eliminate minors from the platform. I doubt they can do that, because as Chris Huskey said in our chat group, there are millions of enterprising, scheming, mischievous children looking to skirt the system. It also doesn’t mean that we won’t get strident editorials such as this one indeed calling for the sector to be AST-ified. But more likely, what will actually happen will be aligned with reasonable views such as this one (in Chinese) from the industry association for gaming CGIGC (organizer of ChinaJoy) that clearly states it is about further regulating the industry when it comes to child-appropriate gameplaying and anti-addiction, not much more unreasonable than that. (FYI, the CGIGC is a part of NTRA AKA SARFT 2.0, and the GPC focuses specifically on gaming, you can see their member list here.) If you want to feel even better, you can of course read news such as this piece from December 2019 (in Chinese) featuring the head of the Propaganda department who clearly states that gaming is part of the “beautiful life.”
OK, so that’s on the regulatory front. I do want to close with some current statistics from the government that might explain better why, despite this maybe not being a huge economic impact to companies like Tencent, the public is nonetheless incensed:
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So we already know that according to Tencent, in Q4 2020, under 18-year olds account for 6.0% of revenues in China, and under-16 year olds are 3.2%. So economically, this doesn’t seem like a big deal. But that doesn’t say much about the actual number of players, which is much higher according to the government —
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The Chinese Youth League just published results (in Chinese, download link here) of how Chinese minors use the internet. According to the CYOL, 62.5% of those under age play video games, and 13.2% play more than 2 hours a day during the week (it goes up to 23.8% during the weekends). Technically, that’s illegal as of November 2019, when the government decreed that it is no more than 90 minutes per day during the week, and 3 hours on the weekends (in Chinese). Obviously, to coordinate this kind of oversight, all the gaming companies will have to use a centralized system, which is what is currently happening (5,000 gaming companies are now linked, in Chinese) but it will basically require companies to spend money, self-organize, and self-regulate. I still don’t think this should impact Tencent much, as they have all the resources in the world and would be highly motivated to comply, but you can at least understand why folks are seething at the company and its titles, because “excessive” game playing is actually quite prevalent.
Your thoughts please … !
