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.
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.”
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.
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.
Chinese tech company Tencent is a gaming giant and the parent company of WeChat, the ubiquitous social messaging app in China.
Cheng Xin | Getty Images News | Getty Images
Chinese social media and gaming company Tencent on Wednesday reported better-than-expected profit in the third quarter, spurred by growth in games, advertising and cloud services.
Tencent reported profit attributable to shareholders of 53.23 billion yuan ($7.37 billion) in the third quarter, compared with a LSEG estimate of 46.18 billion yuan over the period.
The company’s revenue came in at 167.19 billion yuan, short of the 167.82 billion yuan analyst forecast.
The West shouldn’t assume that China is lagging behind the U.S. and Europe on tech developments, Microsoft’s president and vice-chairman warned.
U.S-China tensions in the past few years have centered on the battle between the two nations for tech supremacy, culminating in a slew of export controls on critical technologies. Late last year, China’s Huawei surprised the market with the release of a smartphone whose reviews indicated downloads speeds associated with 5G, sparking speculation of an apparent chip breakthrough that defied U.S. tech sanctions.
Speaking at the Web Summit tech conference in Lisbon, Portugal, on Tuesday, Microsoft’s Brad Smith told CNBC that “in many ways,” China is close to or is even catching up on technology.
“I think one of the dangers, frankly, is that people who don’t go to China too often assume that they’re behind,” he told CNBC’s Karen Tso. “But when you go there, you’re impressed by how much they’re doing.”
He predicted that Chinese and American companies will be competing on technology into the distant future and urged U.S. and European companies to collaborate to grow economies and bring new advancements like artificial intelligence to the rest of the world.
Microsoft CEO Brad Smith participates in a meeting at The Westin Palace Hotel, on 20 May, 2022 in Madrid, Spain.
Cezaro De Luca | Europa Press | Getty Images
Microsoft has operated in China since 1992, according to the company’s web page, including through its largest research and development center outside the U.S. Microsoft CEO Satya Nadella said last year that the firm wasn’t focused on China as a domestic market, but that it provides services to Chinese companies and has a more visible presence locally than do many other U.S. tech giants.
Asked about whether trade and tech transfers — or the movement of data, designs or innovations — with China will get more challenging as Washington transitions between the administrations of U.S. incumbent leader Joe Biden and President-elect Donald Trump, Smith it was too early tor know.
“The truth is, as an American technology company, we can do business in China only when we are offering a service that the Chinese government wants to have there, and the U.S. government wants us to bring there,” he said, adding, “And in some cases they look at, say, a data center to support a Mercedes or a Siemens or a Starbucks or a General Motors — there seems to be a level of comfort. In consumer services, not really.”
He predicted that we’ll live in a world where some technology will move to China, and it won’t be the tech firms that decide.
Vasco Pedro, co-founder and CEO of Unbabel, on the first day of the 2023 Web Summit at the Altice Arena in Lisbon.
Miguel Reis | SOPA | Lightrocket | Getty Images
LISBON — Unbabel on Wednesday announced a translation service powered by artificial intelligence, adding another rival to a highly competitive space — with its CEO warning that humans may not be needed for translation at all in three years.
Widn.AI is Unbabel’s new product and is based on the company’s proprietary large language model (LLM) called Tower. An LLM is an AI model that underpins applications like OpenAI’s ChatGPT.
Unbabel’s LLM allows AI translation in 32 languages, Vasco Pedro, the company’s CEO, told CNBC in an interview at the Web Summit in Lisbon.
“When we started in Unbabel 10 years ago, AI was not at the stage that it is now, and so we were very much focused on creating hybrid solutions that would combine AI and human,” Pedro said.
“But I think for the first time, we believe that translation is now fully in the realm of AI capabilities, and that you can do a lot of things without needing humans at all in the case of translation.”
Unbabel’s traditional product was one that combined so-called machine learning, a type of AI, to translate words, but with human editors to check the final product.
Pedro said Widn.AI will not require humans.
“I think humans still have a slight advantage in very hard use cases. But that advantage right now is so razor thin that except for really the … most difficult use cases, we believe AI is getting really there, and it’s hard for me to see right now how three years from now, you will need humans to be translating anything,” Pedro said.
“There’s still going to be humans responsible for making sure that things get translated and are delivered in the right places,” he added.
Widn.AI is the latest product in an increasingly competitive market which includes Google Translate and products from German startup DeepL.
Those companies see translation as a key area in which LLMs can be used effectively and have trained models specifically to tackle various languages.
Pedro acknowledges that the revenue per translated word is going to “drastically reduce.” But he said there will be an increase in the amount of content translated which will sustain the company’s growth.
Unbabel is speaking to investors and is looking to raise between $20 million and $50 million in funding to fuel the growth and development of Widn.AI, according to Pedro.