Tencent and NetEase shares pare losses after China tightens gaming rules for kids - CNBC

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China's National Press and Publication Administration said minors will only be allowed to play online games for up to three hours a week. That is a significant reduction from previous rules.

Zhang Peng | LightRocket | Getty Images

GUANGZHOU, China — Shares of China's second-largest gaming company NetEase fell on Tuesday after regulators dramatically cut down the amount of time children were allowed to play games.

NetEase was down about 2.9% in afternoon trade in Hong Kong. Meanwhile, rival Tencent was down more than 3% earlier in the day but turned positive later in the day.

Analysts expect the latest directive to have minimal impact on China's gaming giants, perhaps one of the reasons Tencent shares reversed course.

On Monday, China's National Press and Publication Administration said children below 18 years old will only be allowed to play online games for up to three hours a week and only during specific times.

The ruling significantly reduced game time for minors who, under 2019 rules, were allowed to play for up to 90 minutes a day for most parts of the day.

Gaming is the largest source of revenue for NetEase and Tencent. But analysts don't expect a huge impact on the companies as a result of the new rules.

Tencent has previously said only a small amount of gaming revenue comes from younger players in China.

"We estimate about 5% of gaming revenue comes from minors under 18 years old, and we believe there is about 3% earnings impact to Tencent if we assume gaming contributes about 60% of total earnings," investment bank Jefferies said in a note published on Monday.

"Minors represent low singe digits of NetEase's gaming revenue," the analysts added.

For a long time, the Chinese government has been concerned about gaming addiction amongst the country's youth. Content such as games is also tightly controlled in China. 

Tencent and NetEase have been through bouts of gaming regulation before.

In 2018, regulators froze the approvals of new game releases for several months. Tencent and NetEase have already made moves to restrict the amount of time young people play their online games for.

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