Mainland China's General Administration of Press and Publication has introduced a series of policies aimed at reducing video game addiction in children. This insight note is our initial view of what impact these policies will have on the games market in the territory.

Mainland China's General Administration of Press and Publication has introduced a series of policies aimed at reducing video game addiction in children and over monetisation of younger gamers. These policies are underpinned by a photo-based ID system which aims to determine gamers that are under 18. 

The policies limit the play time minors can spend in games and include an age-appropriate rating system for games. Both of these policies are consistent with previous regulation. Children are limited to one and a half hours of online play time for weekdays and three hours during weekend. What is new is the introduction of caps to in-game spending. Children aged between 8 and 16 will only be able to top up less than RMB 50 (~$7) per time with a monthly limitation of RMB 200 (~$28). Children aged 16-18 will be limited to maximum top ups of RMB 100 (~$14) and a monthly spend of RMB 400 (~$56).

Compared to the long established gaming time limitation, the regulation to cap spending on games will have more of a direct impact publishers’ revenue potential. Previously, the Korean PC online gaming market suffered a significant downturn in 2015 in response to limitations on web-based board & card games. This resulted in publishers diverting their investments into mobile games, although this was relevant to all gamers not just children. Although the policy in China this time is aimed at youth protection, it might place some additional pressure on publishers’ revenue particularly when paying user growth stagnates and improving ARPPU becomes more a tactical focus. But any negative impact should be put in context - gamers under the age of 18 represent a minor share of the market and are not the biggest spenders so the impact is likely to relatively limited.  

Additionally, the major publishers, namely Tencent and NetEase, have already started divesifying to reduce exposure to this sort of regulatory risk. Tencent's focus is increasingly on the industrial internet including technologies such as cloud computing and 5G, while NetEase is building an education-based strategy. As such, we believe this round of policies will have a small negative impact on publishers’ revenue, and that the major players that are pursuing other opportunities, are likely to be the least impacted.